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 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 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 that this luxury party that began inside the second 50 % of 2016 is still completely swing. But there are reasons to be mindful. First, most of the demand that fuelled LVMH’s growth comes from China.
The country’s individuals 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 after the hiatus, and that super-charged spending might start to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they have an inclination to splash out more.
There is a further risk to Chinese demand if trade tensions using the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is a French company, it’s hard to find out that these issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment among the nation’s consumers, making them less inclined to go on a very high-end shopping spree. Given they account for about 40 percent of luxury goods groups’ sales, according to analysts at HSBC, this represents an important risk to the industry.
But there are other regions to be concerned about. Though the U.S. has become another bright spot, stock trading volatility this coming year is going to do little to encourage the sensation 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 throughout the sector are definitely 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 said that costs are too rich right now for acquisitions. This leaves him room to swoop when a shake-out comes.
His group trades on the forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for starters, the group’s Gucci label really has lot opting 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 being 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 must be able to withstand pressures on the industry better than most. Which causes it to be well evtyxi to pick off weaker rivals once the bling binge finally comes to an end.