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 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 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 group is demonstrating that this luxury party that began within the second 50 % of 2016 is still completely swing. But you will find good reasons to be cautious. 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 along with a slowdown inside the economy took their toll. There has undoubtedly been an component of catching up after the hiatus, and this super-charged spending might begin to wane since the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they tend 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 a French company, it’s hard to see that these issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, which makes them less inclined to go on a higher-end shopping spree. Given they make up about 40 % of luxury goods groups’ sales, based on analysts at HSBC, this represents an important risk towards the industry.
But there are other regions to concern yourself with. Although the U.S. has become another bright spot, stock trading volatility this season will do little to let the feeling of prosperity that’s crucial for confidence to invest on expensive watches or designer fashion.
Any slowdown might actually work in LVMH’s favour. Valuations over 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 claimed that charges 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 just one, the group’s Gucci label still has lot choosing it, even though it’s already experienced 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 capacity 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 much better than most. That also can make it well evtyxi to pick off weaker rivals if the bling binge finally concerns a conclusion.