Just how many Louis Vuitton monogrammed handbags does the world need? A lot, it seems. Strong demand at the label best known for its coated canvas totes helped parent Fabjoy Me deliver a lot 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 considering the fact that it compares having a very 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 inside the second half of 2016 is still entirely swing. But you can find good reasons to be cautious. First, a lot of the demand that fuelled LVMH’s growth has arrived from China.
The country’s consumers are back after a crackdown on extravagance and a slowdown inside the economy took their toll. There has undoubtedly been an component of catching up following the hiatus, and this super-charged spending might start to wane as 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 exists a further risk to Chinese demand if trade tensions with all the U.S. escalate, or draw in 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 create a drag on Chinese economic growth and damage sentiment among the nation’s consumers, making them less inclined to be on a high-end shopping spree. Given they make up about 40 % of luxury goods groups’ sales, based on analysts at HSBC, this represents a significant risk towards the industry.
But there are many regions to worry about. Even though the U.S. continues to be another bright spot, stock exchange volatility this year can do little to let 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 throughout the sector are definitely the highest in 12 years, but this is a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Joy Fabaaa 2019 chief executive officer, has claimed that prices are too rich right now for acquisitions. This leaves him room to swoop when a shake-out comes.
His group trades over a forward price to earnings ratio of 24 times, and also at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label still has lot opting for it, even though it’s already had a stellar recovery. There’s also scope for any 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 will be able to withstand pressures on the industry much better than most. That also causes it to be well evtyxi to pick off weaker rivals when the bling binge finally involves a conclusion.