Just how many Louis Vuitton monogrammed handbags does the world need? A lot, 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 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 inside the second 50 % of 2016 remains entirely swing. But you will find reasons to be cautious. First, most of the demand that fuelled LVMH’s growth has come from China.
The country’s individuals are back after having a crackdown on extravagance along with a slowdown within the economy took their toll. There has undoubtedly been an element of catching up following the hiatus, which super-charged spending might commence to wane as the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they tend to splash out more.
You will find 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 a French company, it’s hard to see that these issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, causing them to be less inclined to go 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 to the industry.
But there are many regions to worry about. Even though the U.S. has become another bright spot, stock trading volatility this season can do little to encourage the sensation 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 this is a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Joy Fabaaa 2019 chief executive officer, has said that costs 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, and also at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label still has lot choosing it, even though it’s already enjoyed a stellar recovery. There’s also scope to get a re-rating after its decision to spin-out Puma leaves it as being a pure luxury player.
LVMH should nevertheless be able to retain its lead. Given its scale, along with operations spanning cosmetics to wines and spirits, it must be able to withstand pressures on the industry a lot better than most. That also can make it well evtyxi to pick off weaker rivals if the bling binge finally involves an end.