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 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 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 audience is demonstrating the luxury party that began in the second half of 2016 continues to be in full swing. But there are good reasons to be cautious. First, most of the demand that fuelled LVMH’s growth has come from China.
The country’s individuals are back after having a crackdown on extravagance along with a slowdown inside the economy took their toll. There has undoubtedly been an component of catching up following the hiatus, which super-charged spending might commence to wane as the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they tend to splash out more.
There is a further risk to Chinese demand if trade tensions with the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is really a French company, it’s hard to view these issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, which makes them less inclined to go on a higher-end shopping spree. Given they make up about 40 percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents an important risk towards the industry.
But there are other regions to concern yourself with. Though the U.S. continues to be another bright spot, stock exchange volatility this coming year will do little to encourage the sense 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 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 stated that costs are too rich right now for acquisitions. This leaves him room to swoop when a shake-out comes.
His group trades over a forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for 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 any 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, with operations spanning cosmetics to wines and spirits, it must 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 when the bling binge finally involves a conclusion.