Just how many Louis Vuitton monogrammed handbags does the world need? A whole lot, it seems. Strong demand at the label well 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 given 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 group is demonstrating that this luxury party that began inside the second one half of 2016 remains entirely swing. But you will find reasons to be cautious. 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 and a slowdown within the economy took their toll. There has undoubtedly been an part of catching up following the hiatus, which super-charged spending might begin to wane because 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.
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 find out these issues can’t touch it. The spat could produce a drag on Chinese economic growth and damage sentiment one of the nation’s consumers, which makes them less inclined to be on a higher-end shopping spree. Given they take into account about forty percent of luxury goods groups’ sales, based on analysts at HSBC, this represents an important risk for the industry.
But there are more regions to worry about. Though the U.S. has become another bright spot, stock market volatility this coming year is going to do little to let 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 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 in case a shake-out comes.
His group trades on the 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 still has lot going 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 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 makes it well evtyxi to pick off weaker rivals when the bling binge finally concerns an end.