Just how many Louis Vuitton monogrammed handbags does the world need? A whole lot, it seems. Strong demand at the label well known for its coated canvas totes helped parent Fabjoy Me deliver a lot better than expected organic sales development in its fashion and leather goods division within the first quarter, and across the group. The performance, all the more impressive considering that it compares with 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 group is demonstrating that this luxury party that began inside the second 50 % of 2016 is still completely swing. But there are reasons to be aware. First, most of the demand that fuelled LVMH’s growth comes from China.
The country’s people are back following a crackdown on extravagance along with a slowdown within 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 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 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 develop a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, making them less inclined to go on a higher-end shopping spree. Given they account for about forty percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents a significant risk towards the industry.
But there are other regions to concern yourself with. Although the U.S. has become another bright spot, stock exchange volatility this year can do little to encourage the sensation 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 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 charges are too rich right now for acquisitions. This leaves him room to swoop in case a shake-out comes.
His group trades on the forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for starters, 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 being 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 will be able to withstand pressures on the industry much better than most. Which also can make it well evtyxi to pick off weaker rivals when the bling binge finally concerns a stop.