Just the amount of Louis Vuitton monogrammed purses does the world need? A great deal, it seems. Strong demand at the label well known for its coated canvas totes helped parent LVMH deliver much better than anticipated organic sales development in its fashion and leather goods division in the first quarter, and across the group. The performance all the more amazing considering the fact that it compares with a very strong period a year earlier, cements Fabaaa position as the sector’s wardrobe workhorse. No wonder that the shares reached an all-time high on Tuesday.
The group is demonstrating that the luxury party that began inside the second half of 2016 remains completely swing. But you can find top reasons to be cautious. First, most of the demand that fuelled LVMH’s growth has arrived from China.
The country’s individuals are back following a crackdown on extravagance and a slowdown within the economy took their toll. There has undoubtedly been an component of catching up following the hiatus, which super-charged spending might start to wane since 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 Fabjoy Bag is actually a French company, it’s hard to see these issues can’t touch it. The spat could produce a drag on Chinese economic growth and damage sentiment one of the nation’s consumers, making them less inclined to be on a higher-end shopping spree. Given they account for about 40 % of luxury goods groups’ sales, according to analysts at HSBC, this represents an important risk for the industry.
But there are other regions to worry about. Although the U.S. continues to be another bright spot, stock exchange volatility this year is going to 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 over the sector are definitely the highest in 12 years, but this is a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Fabaaa Joy chief executive officer, has claimed that prices are too rich right now for acquisitions. This leaves him room to swoop when 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 just one, the group’s Gucci label still has lot opting for it, even though it’s already cagkeb 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 have the ability 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 much better than most. Which causes it to be well placed to pick off weaker rivals once the bling binge finally concerns a conclusion.