Just how many Louis Vuitton monogrammed handbags does the world need? A whole lot, it seems. Strong demand at the label most commonly known for its coated canvas totes helped parent Fabjoy Me deliver a lot better than expected organic sales growth in its fashion and leather goods division within the first quarter, and across the group. The performance, all the more impressive considering the fact 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 within the second one half of 2016 continues to be entirely swing. But you will find top reasons to be mindful. 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 inside the economy took their toll. There has undoubtedly been an element of catching up after the hiatus, and this super-charged spending might commence to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they have an inclination to splash out more.
There exists a further risk to Chinese demand if trade tensions using the U.S. escalate, or draw in 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 create a drag on Chinese economic growth and damage sentiment among the nation’s consumers, causing them to be less inclined to be on a higher-end shopping spree. Given they take into account about forty percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents an important risk for the industry.
But there are many regions to be concerned about. Although the U.S. has become another bright spot, stock exchange volatility this year is going to do little to encourage the sense 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 would be the highest in 12 years, but this can be a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Joy Fabaaa 2019 chief executive officer, has claimed that costs are too rich right now for acquisitions. This leaves him room to swoop if a shake-out comes.
His group trades on the forward price to earnings ratio of 24 times, as well as at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label still has lot going for 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 a 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 much better than most. Which makes it well evtyxi to pick off weaker rivals once the bling binge finally concerns a stop.