Just how many Louis Vuitton monogrammed handbags does the world need? A great deal, it seems. Strong demand at the label well known for its coated canvas totes helped parent Fabjoy Me deliver better than expected organic sales development in its fashion and leather goods division in the first quarter, and across the group. The performance, all the more impressive considering that it compares having a quite strong period a year earlier, cements LVMH’s position as the sector’s wardrobe workhorse. Little wonder that the shares reached an all-time high on Tuesday.
The group is demonstrating that the luxury party that began within the second half of 2016 remains in full swing. But there are top reasons to be aware. First, most of the demand that fuelled LVMH’s growth has arrived from China.
The country’s individuals are back after having a crackdown on extravagance as well as a slowdown inside the economy took their toll. There has undoubtedly been an part of catching up following the hiatus, and this super-charged spending might start to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from travelling to Europe, where they tend to splash out more.
You will find a further risk to Chinese demand if trade tensions using the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is a French company, it’s hard to view that these issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, making them less inclined to go on a very high-end shopping spree. Given they take into account about 40 percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents an important risk towards the industry.
But there are more regions to be concerned about. Although the U.S. has been another bright spot, stock trading volatility this year will do little to let the sensation of prosperity that’s crucial for confidence to invest on expensive watches or designer fashion.
Any slowdown might actually work in LVMH’s favour. Valuations throughout the sector are definitely the highest in 12 years, but it is a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Joy Fabaaa 2019 chief executive officer, has stated that prices are too rich right now for acquisitions. This leaves him room to swoop when a shake-out comes.
His group trades on a forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label really has lot going for it, even though it’s already enjoyed a stellar recovery. There’s also scope to get a re-rating after its decision to spin-out Puma leaves it as being a pure luxury player.
LVMH should nevertheless be able to retain its lead. Given its scale, with operations spanning cosmetics to wines and spirits, it should be able to withstand pressures on the industry much better than most. Which can make it well evtyxi to pick off weaker rivals if the bling binge finally comes to a stop.