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 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 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 the luxury party that began inside the second 50 % of 2016 is still entirely swing. But you will find reasons to be mindful. First, most of the demand that fuelled LVMH’s growth has arrived from China.
The country’s consumers are back after having a crackdown on extravagance as well as a slowdown within the economy took their toll. There has undoubtedly been an part of catching up following the hiatus, and this super-charged spending might begin to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting 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 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 amongst the nation’s consumers, making them less inclined to be on a high-end shopping spree. Given they account for about forty percent of luxury goods groups’ sales, according to analysts at HSBC, this represents an important risk for the industry.
But there are more regions to be concerned about. Even though the U.S. has become another bright spot, stock exchange volatility this coming year can do little to encourage the sensation of prosperity that’s crucial for confidence to spend 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 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 charges 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 just one, the group’s Gucci label continues to have lot choosing 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 pure luxury player.
LVMH should nevertheless have the ability to retain its lead. Given its scale, along with operations spanning cosmetics to wines and spirits, it should be able to withstand pressures on the industry a lot better than most. Which also can make it well evtyxi to pick off weaker rivals if the bling binge finally involves a stop.