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 within the first quarter, and across the group. The performance, all the more impressive considering that it compares with 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 that this luxury party that began inside the second half of 2016 remains entirely swing. But you will find good reasons to be mindful. First, most of the demand that fuelled LVMH’s growth has arrived 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 right after the hiatus, which super-charged spending might commence to wane since 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 exists a further risk to Chinese demand if trade tensions using the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is really a French company, it’s hard to see these issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, causing them to be less inclined to be on a higher-end shopping spree. Given they make up about 40 % of luxury goods groups’ sales, based on analysts at HSBC, this represents a substantial risk towards the industry.
But there are many regions to concern yourself with. Though the U.S. has been another bright spot, stock trading 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 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 stated that prices are too rich right now for acquisitions. This leaves him room to swoop if a shake-out comes.
His group trades on a forward price to earnings ratio of 24 times, as well as at a deserved premium to Kering. True, that gap could narrow – for starters, the group’s Gucci label continues to have lot opting for it, even though it’s already enjoyed a stellar recovery. There’s also scope for a 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, along with operations spanning cosmetics to wines and spirits, it should 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 involves a stop.