Just how many Louis Vuitton monogrammed handbags does the world need? A great deal, it seems. Strong demand at the label most commonly 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 group is demonstrating that this luxury party that began within the second 50 % of 2016 continues to be completely swing. But there are good reasons to be cautious. First, a lot of the demand that fuelled LVMH’s growth has arrived from China.
The country’s individuals are back after a crackdown on extravagance and a slowdown in the economy took their toll. There has undoubtedly been an part of catching up right after the hiatus, and this super-charged spending might begin to wane as the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they have an inclination to splash out more.
You will find 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 really a French company, it’s hard to see that these particular 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 very high-end shopping spree. Given they make up about 40 percent of luxury goods groups’ sales, according to analysts at HSBC, this represents a substantial risk to the industry.
But there are many regions to concern yourself with. Even though the U.S. has been another bright spot, stock market volatility this coming year will do little to let the sense 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 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 stated that prices 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 really has lot going for 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 being 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 should be able to withstand pressures on the industry much better than most. Which also can make it well evtyxi to pick off weaker rivals once the bling binge finally comes to a conclusion.