Just how many Louis Vuitton monogrammed handbags does the world need? A 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 in the first quarter, and across the group. The performance, all the more impressive considering 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 group is demonstrating that the luxury party that began within the second one half of 2016 continues to be completely swing. But you will find top reasons to be mindful. First, most of the demand that fuelled LVMH’s growth comes from China.
The country’s consumers are back after having a crackdown on extravagance and a slowdown within the economy took their toll. There has undoubtedly been an part of catching up after 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 visiting 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 find out these issues can’t touch it. The spat could produce a drag on Chinese economic growth and damage sentiment among the nation’s consumers, which makes them less inclined to be on a higher-end shopping spree. Given they account for about 40 % of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents an important risk to the industry.
But there are many regions to be concerned about. Even though the U.S. continues to be another bright spot, stock trading volatility this coming year is going to do little to encourage the sense of prosperity that’s crucial for confidence to enjoy on expensive watches or designer fashion.
Any slowdown might actually work in LVMH’s favour. Valuations across the sector would be the highest in 12 years, but it is 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 over a forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for just one, the group’s Gucci label still has lot opting for it, even though it’s already had a stellar recovery. There’s also scope for any re-rating after its decision to spin-out Puma leaves it as a a pure luxury player.
LVMH should nevertheless be able to retain its lead. Given its scale, and with operations spanning cosmetics to wines and spirits, it must be able to withstand pressures on the industry a lot better than most. Which can make it well evtyxi to pick off weaker rivals if the bling binge finally concerns a stop.