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 a lot better than expected organic sales growth in its fashion and leather goods division within 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 audience is demonstrating that this luxury party that began inside the second half of 2016 remains entirely swing. But there are good reasons to be cautious. First, most of the demand that fuelled LVMH’s growth has come from China.
The country’s people are back after having a crackdown on extravagance as well as a slowdown inside 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 because the year progresses. What’s more, the strong euro could deter Chinese shoppers from travelling to Europe, where they have a tendency to splash out more.
There exists a further risk to Chinese demand if trade tensions with all the U.S. escalate, or attract other countries – though Fabaaa Joy New Website is really a French company, it’s hard to view that these issues can’t touch it. The spat could produce 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 make up about forty percent of luxury goods groups’ sales, based on analysts at HSBC, this represents a significant risk for the industry.
But there are other regions to worry about. Even though the U.S. has been another bright spot, stock market volatility this season will do little to let 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 throughout 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 if a shake-out comes.
His group trades on the forward price to earnings ratio of 24 times, as well as at a deserved premium to Kering. True, that gap could narrow – for starters, the group’s Gucci label still has lot choosing it, even though it’s already had a stellar recovery. There’s also scope for 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, along with operations spanning cosmetics to wines and spirits, it will be able to withstand pressures on the industry better than most. That also can make it well evtyxi to pick off weaker rivals if the bling binge finally comes to an end.