Just how many Louis Vuitton monogrammed handbags does the world need? A great deal, it seems. Strong demand at the label well known for its coated canvas totes helped parent Fabjoy Me deliver much 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 having 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 within the second half of 2016 remains entirely swing. But there are top reasons to be mindful. First, most of the demand that fuelled LVMH’s growth has arrived 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 following the hiatus, and this super-charged spending might commence to wane as the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting 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 actually a French company, it’s hard to see these 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 go 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 many regions to be concerned about. Even though the U.S. continues to be another bright spot, stock market volatility this coming year can do little to let 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 throughout the sector would be 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 stated that charges 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 one, the group’s Gucci label really has lot going for it, even though it’s already enjoyed 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 be able 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. That also makes it well evtyxi to pick off weaker rivals once the bling binge finally involves a stop.