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 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 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 within the second half of 2016 remains entirely swing. But you can find reasons to be aware. First, much of the demand that fuelled LVMH’s growth has arrived from China.
The country’s individuals are back after having a crackdown on extravagance along with a slowdown inside the economy took their toll. There has undoubtedly been an component of catching up after the hiatus, and that 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 the U.S. escalate, or attract 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 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 40 percent of luxury goods groups’ sales, according to analysts at HSBC, this represents an important risk to the industry.
But there are more regions to concern yourself with. Though the U.S. has become another bright spot, stock market volatility this coming year can do little to encourage the feeling 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 are 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 charges 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, as well as at a deserved premium to Kering. True, that gap could narrow – for just one, 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 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 much better than most. Which causes it to be well evtyxi to pick off weaker rivals once the bling binge finally concerns a stop.