Just how many Louis Vuitton monogrammed handbags does the world need? A lot, it seems. Strong demand at the label well known for its coated canvas totes helped parent Fabjoy Me deliver much better than expected organic sales increase in its fashion and leather goods division in the first quarter, and across the group. The performance, all the more impressive given that it compares with 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 the luxury party that began in the second half of 2016 remains completely swing. But there are reasons to be cautious. First, a lot of the demand that fuelled LVMH’s growth comes from China.
The country’s consumers are back after having a crackdown on extravagance and a slowdown in the economy took their toll. There has undoubtedly been an element of catching up following the hiatus, and this super-charged spending might commence to wane since the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they tend to splash out more.
There is a further risk to Chinese demand if trade tensions using the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is really a French company, it’s hard to find out that these particular issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, which makes them less inclined to go on a higher-end shopping spree. Given they make up about forty percent of luxury goods groups’ sales, based on analysts at HSBC, this represents a substantial risk for the industry.
But there are many regions to concern yourself with. Though the U.S. has become another bright spot, stock trading volatility this year is going to do little to encourage the sense of prosperity that’s crucial for confidence to spend on expensive watches or designer fashion.
Any slowdown might actually work in LVMH’s favour. Valuations over the sector are 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 said that prices are too rich right now for acquisitions. This leaves him room to swoop if a shake-out comes.
His group trades over a forward price to earnings ratio of 24 times, as well as at a deserved premium to Kering. True, that gap could narrow – for starters, the group’s Gucci label continues to have lot choosing it, even though it’s already experienced a stellar recovery. There’s also scope for a re-rating after its decision to spin-out Puma leaves it as being a pure luxury player.
LVMH should nevertheless have the capacity 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 better than most. That also can make it well evtyxi to pick off weaker rivals if the bling binge finally involves a stop.