Just how many Louis Vuitton monogrammed handbags does the world need? A 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 growth in its fashion and leather goods division within the first quarter, and across the group. The performance, all the more impressive considering that it compares with a very 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 remains entirely swing. But there are top reasons to be mindful. First, a lot of the demand that fuelled LVMH’s growth has come from China.
The country’s individuals are back after having a crackdown on extravagance and 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 visiting Europe, where they tend to splash out more.
There exists a further risk to Chinese demand if trade tensions with all the U.S. escalate, or draw in other countries – though Fabaaa Joy New Website is actually a French company, it’s hard to view that these particular issues can’t touch it. The spat could produce a drag on Chinese economic growth and damage sentiment among the nation’s consumers, making them less inclined to go on a very high-end shopping spree. Given they account for about 40 % 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. Although the U.S. continues to be another bright spot, stock exchange volatility this year can do little to encourage the sensation of prosperity that’s crucial for confidence to enjoy on expensive watches or designer fashion.
Any slowdown might actually work in LVMH’s favour. Valuations throughout the sector are the highest in 12 years, but this can be a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Joy Fabaaa 2019 chief executive officer, has said that prices are too rich right now for acquisitions. This leaves him room to swoop when a shake-out comes.
His group trades on a forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for just one, 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 be able to retain its lead. Given its scale, with operations spanning cosmetics to wines and spirits, it should be able to withstand pressures on the industry better than most. Which also can make it well evtyxi to pick off weaker rivals when the bling binge finally involves a conclusion.