Just the number of Louis Vuitton monogrammed purses does the world need? A lot, it seems like. Strong demand at the label well known for its covered canvas totes helped parent LVMH deliver much better than expected organic sales growth in its fashion and leather goods division in the first quarter, and throughout the group. The performance all the more impressive given that it compares with a quite 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 audience is demonstrating the luxury party that began within the second one half of 2016 continues to be 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 people are back after 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, which super-charged spending might commence 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 exists a further risk to Chinese demand if trade tensions with all the U.S. escalate, or attract other countries – though Fabjoy Bag is really a French company, it’s hard to find out that these particular 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 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 a substantial risk towards the industry.
But there are many regions to concern yourself with. Even though the U.S. continues to be another bright spot, stock trading volatility this year will do little to encourage the sense of prosperity that’s crucial for confidence to spend 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 this can be a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Fabaaa Joy chief executive officer, has stated that charges are too rich right now for acquisitions. This leaves him room to swoop when a shake-out comes.
His group trades on 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 really has lot going for it, even though it’s already cagkeb a stellar recovery. There’s also scope to get 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, and with operations spanning cosmetics to wines and spirits, it must be able to withstand pressures on the industry a lot better than most. That also causes it to be well placed to pick off weaker rivals once the bling binge finally involves an end.