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 increase 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 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 reasons to be mindful. First, much of the demand that fuelled LVMH’s growth comes from China.
The country’s consumers are back after a crackdown on extravagance as well as a slowdown in the economy took their toll. There has undoubtedly been an part of catching up after the hiatus, and that super-charged spending might commence to wane as the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they have a tendency to splash out more.
There is 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 find out that these issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, making them less inclined to go on a very high-end shopping spree. Given they make up about 40 percent of luxury goods groups’ sales, based on analysts at HSBC, this represents a significant risk for the industry.
But there are many regions to be concerned about. Even though the U.S. continues to be another bright spot, stock trading volatility this year can do little to encourage the sensation 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 throughout the sector are definitely 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 said that costs 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, as well as at a deserved premium to Kering. True, that gap could narrow – for starters, the group’s Gucci label continues to have lot choosing it, even though it’s already enjoyed a stellar recovery. There’s also scope for 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, with operations spanning cosmetics to wines and spirits, it should be able to withstand pressures on the industry better than most. Which also makes it well evtyxi to pick off weaker rivals if the bling binge finally comes to a conclusion.