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 increase in its fashion and leather goods division in the first quarter, and across the group. The performance, all the more impressive given 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 group is demonstrating that the luxury party that began inside the second one half of 2016 remains in full swing. But you will find good reasons to be aware. First, most of the demand that fuelled LVMH’s growth comes from China.
The country’s consumers are back following a crackdown on extravagance as well as a slowdown in the economy took their toll. There has undoubtedly been an component of catching up right after the hiatus, and that super-charged spending might start to wane as 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.
There is 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 see that these particular issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment one of the nation’s consumers, causing them to be less inclined to go on a very high-end shopping spree. Given they take into account about 40 percent of luxury goods groups’ sales, based on analysts at HSBC, this represents an important risk towards the industry.
But there are other regions to be concerned about. Although the U.S. has been another bright spot, stock trading volatility this coming year is going to do little to encourage the sense 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 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 claimed that prices 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 going for it, even though it’s already had a stellar recovery. There’s also scope for any re-rating after its decision to spin-out Puma leaves it as a pure luxury player.
LVMH should nevertheless have the ability to retain its lead. Given its scale, and with operations spanning cosmetics to wines and spirits, it will be able to withstand pressures on the industry much better than most. Which causes it to be well evtyxi to pick off weaker rivals when the bling binge finally involves a conclusion.