Just how many Louis Vuitton monogrammed handbags does the world need? A great deal, it seems. Strong demand at the label most commonly known for its coated canvas totes helped parent Fabjoy Me deliver much 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 considering that it compares with 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 in the second 50 % of 2016 continues to be in full swing. But you can find reasons to be aware. First, a lot of the demand that fuelled LVMH’s growth has come from China.
The country’s people are back following 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 this super-charged spending might start to wane since the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they have an inclination to splash out more.
There exists 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 actually a French company, it’s hard to see these issues can’t touch it. The spat could produce a drag on Chinese economic growth and damage sentiment among the nation’s consumers, which makes them less inclined to go on a very high-end shopping spree. Given they make up about forty percent of luxury goods groups’ sales, based on analysts at HSBC, this represents an important risk towards the industry.
But there are many regions to concern yourself with. Though the U.S. has become another bright spot, stock exchange volatility this season is going to do little to encourage the feeling 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 over 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 claimed that prices are too rich right now for acquisitions. This leaves him room to swoop if a shake-out comes.
His group trades over a forward price to earnings ratio of 24 times, as well as 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 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 ability to retain its lead. Given its scale, and with operations spanning cosmetics to wines and spirits, it must be able to withstand pressures on the industry better than most. Which also causes it to be well evtyxi to pick off weaker rivals if the bling binge finally comes to an end.