Just how many Louis Vuitton monogrammed handbags does the world need? A lot, it seems. Strong demand at the label most commonly known for its coated canvas totes helped parent Fabjoy Me deliver 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 given 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 that the luxury party that began within the second 50 % of 2016 continues to be entirely swing. But there are reasons to be cautious. 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 element of catching up after the hiatus, and this super-charged spending might commence to wane since the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they have a tendency 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 view that these particular issues can’t touch it. The spat could produce a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, causing them to be less inclined to be on a high-end shopping spree. Given they account for about 40 percent of luxury goods groups’ sales, based on analysts at HSBC, this represents an important risk to the industry.
But there are many regions to concern yourself with. Even though the U.S. has been another bright spot, stock exchange volatility this coming year can do little to let the feeling 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 across 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 when a shake-out comes.
His group trades on the 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 still has lot going for it, even though it’s already enjoyed 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, and with operations spanning cosmetics to wines and spirits, it should be able to withstand pressures on the industry better than most. Which can make it well evtyxi to pick off weaker rivals when the bling binge finally concerns a conclusion.