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 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 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 that the luxury party that began inside the second 50 % of 2016 remains in full swing. But you can find top reasons to be cautious. First, much of the demand that fuelled LVMH’s growth has arrived from China.
The country’s people are back after a crackdown on extravagance along with a slowdown in the economy took their toll. There has undoubtedly been an element of catching up right after the hiatus, which super-charged spending might begin to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from travelling to Europe, where they tend 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 really a French company, it’s hard to see that 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, causing them to be less inclined to be on a higher-end shopping spree. Given they take into account about 40 % of luxury goods groups’ sales, according to analysts at HSBC, this represents an important risk for the industry.
But there are many regions to concern yourself with. Though the U.S. continues to be another bright spot, stock exchange volatility this year is going to do little to let 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 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, Joy Fabaaa 2019 chief executive officer, has stated that prices are too rich right now for acquisitions. This leaves him room to swoop in case a shake-out comes.
His group trades over a forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for starters, the group’s Gucci label really has lot going for it, even though it’s already experienced 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, along with operations spanning cosmetics to wines and spirits, it must be able to withstand pressures on the industry better than most. Which causes it to be well evtyxi to pick off weaker rivals if the bling binge finally involves an end.