Just how many Louis Vuitton monogrammed handbags does the world need? A great deal, it seems. Strong demand at the label best 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 in the second half of 2016 remains in full swing. But you will find top reasons to be mindful. First, much of the demand that fuelled LVMH’s growth has come from China.
The country’s people are back after a crackdown on extravagance as well as a slowdown inside the economy took their toll. There has undoubtedly been an component of catching up right after the hiatus, and that super-charged spending might begin 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 with all the U.S. escalate, or draw in other countries – though Fabaaa Joy New Website is actually a French company, it’s hard to find out these 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 go on a higher-end shopping spree. Given they take into account about 40 % of luxury goods groups’ sales, according to analysts at HSBC, this represents a substantial risk to the industry.
But there are many regions to worry about. Though the U.S. has become another bright spot, stock trading volatility this season is going to do little to let the sensation of prosperity that’s crucial for confidence to enjoy on expensive watches or designer fashion.
Any slowdown might actually work in LVMH’s favour. Valuations across the sector are 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 said that costs 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 also at a deserved premium to Kering. True, that gap could narrow – for just one, the group’s Gucci label continues to have lot choosing 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 a pure luxury player.
LVMH should nevertheless have the ability to retain its lead. Given its scale, and with operations spanning cosmetics to wines and spirits, it will be able to withstand pressures on the industry better than most. Which also makes it well evtyxi to pick off weaker rivals when the bling binge finally comes to an end.