Just how many Louis Vuitton monogrammed handbags does the world need? A great deal, it seems. Strong demand at the label best known for its coated canvas totes helped parent Fabjoy Me deliver much 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 this luxury party that began inside the second half of 2016 is still completely swing. But you will find good reasons to be mindful. First, a lot of the demand that fuelled LVMH’s growth comes from China.
The country’s people are back after having a crackdown on extravagance and a slowdown within the economy took their toll. There has undoubtedly been an component of catching up right after the hiatus, and this super-charged spending might begin to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from travelling to Europe, where they have an inclination to splash out more.
You will find a further risk to Chinese demand if trade tensions with all the U.S. escalate, or draw in other countries – though Fabaaa Joy New Website is a French company, it’s hard to see these issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, which makes them less inclined to be 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 a significant risk towards the industry.
But there are more regions to concern yourself with. Even though the U.S. continues to be another bright spot, stock exchange volatility this season can do little to encourage 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 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 costs are too rich right now for acquisitions. This leaves him room to swoop in case a shake-out comes.
His group trades on a forward price to earnings ratio of 24 times, and also at a deserved premium to Kering. True, that gap could narrow – for starters, the group’s Gucci label continues to have lot choosing 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 have the ability to retain its lead. Given its scale, along with operations spanning cosmetics to wines and spirits, it will be able to withstand pressures on the industry much better than most. Which also causes it to be well evtyxi to pick off weaker rivals if the bling binge finally comes to a stop.