Just how many Louis Vuitton monogrammed handbags does the world need? A whole lot, it seems. Strong demand at the label best known for its coated canvas totes helped parent Fabjoy Me deliver better than expected organic sales increase in its fashion and leather goods division in the first quarter, and across the group. The performance, all the more impressive given 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 group is demonstrating that the luxury party that began within the second one half of 2016 is still entirely swing. But there are reasons to be cautious. First, most of the demand that fuelled LVMH’s growth has arrived from China.
The country’s individuals are back after having a crackdown on extravagance as well as 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 commence to wane as the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they tend to splash out more.
There exists a further risk to Chinese demand if trade tensions using the U.S. escalate, or draw in other countries – though Fabaaa Joy New Website is actually a French company, it’s hard to see that these particular 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 go on a very high-end shopping spree. Given they account for about forty percent of luxury goods groups’ sales, according to 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 market volatility this year can do little to encourage the sensation 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 would be 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 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, and also at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label still has lot opting for it, even though it’s already had a stellar recovery. There’s also scope to get a re-rating after its decision to spin-out Puma leaves it as a a pure luxury player.
LVMH should nevertheless have the ability 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 a lot better than most. Which can make it well evtyxi to pick off weaker rivals once the bling binge finally comes to a stop.