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 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 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 audience is demonstrating that this luxury party that began inside the second 50 % of 2016 continues to be in full swing. But you will find reasons to be aware. First, a lot of the demand that fuelled LVMH’s growth has come from China.
The country’s individuals are back following a crackdown on extravagance as well as a slowdown in the economy took their toll. There has undoubtedly been an part of catching up right after the hiatus, which 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 have an inclination to splash out more.
You will find a further risk to Chinese demand if trade tensions with all the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is a French company, it’s hard to view these issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment one of the nation’s consumers, causing them to be less inclined to be on a higher-end shopping spree. Given they make up about 40 percent of luxury goods groups’ sales, according to analysts at HSBC, this represents an important risk for the industry.
But there are other regions to concern yourself with. Though the U.S. continues to be another bright spot, stock market volatility this season can do little to encourage the sense 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 over 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 said that costs are too rich right now for acquisitions. This leaves him room to swoop in case 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 starters, the group’s Gucci label still has 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 a pure luxury player.
LVMH should nevertheless be able 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. That also causes it to be well evtyxi to pick off weaker rivals if the bling binge finally concerns an end.