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 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 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 the luxury party that began inside the second 50 % of 2016 remains in full swing. But you will find reasons to be aware. First, much of the demand that fuelled LVMH’s growth has arrived 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 component of catching up after the hiatus, and that super-charged spending might commence to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they have a tendency to splash out more.
You will find 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 actually a French company, it’s hard to view these 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 be 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 a substantial risk towards the industry.
But there are more regions to worry about. Even though the U.S. has become another bright spot, stock trading volatility this season is going to do little to let the feeling 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 across 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 claimed that charges 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, and also at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label still has lot going for it, even though it’s already experienced a stellar recovery. There’s also scope for any 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 better than most. Which makes it well evtyxi to pick off weaker rivals once the bling binge finally concerns an end.