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 increase 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 50 % of 2016 is still in full swing. But you can find good reasons to be aware. First, a lot of the demand that fuelled LVMH’s growth has come from China.
The country’s people are back after a crackdown on extravagance and a slowdown inside the economy took their toll. There has undoubtedly been an part 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 travelling to Europe, where they have an inclination to splash out more.
There is a further risk to Chinese demand if trade tensions with 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 particular issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment among the nation’s consumers, causing them to be less inclined to go on a higher-end shopping spree. Given they account for about 40 % of luxury goods groups’ sales, based on analysts at HSBC, this represents a significant risk for the industry.
But there are other regions to worry about. Though the U.S. continues to be another bright spot, stock market volatility this year can do little to encourage the feeling 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 over the sector are definitely 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 in case 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 just one, the group’s Gucci label really has lot opting for it, even though it’s already experienced 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 capacity 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 a lot better than most. Which can make it well evtyxi to pick off weaker rivals once the bling binge finally involves a conclusion.