Just the amount of Louis Vuitton company logo handbags does the world need? A lot, it appears. Strong demand at the label well known for its coated canvas totes helped parent LVMH deliver a lot better than expected organic sales growth in its fashion and leather goods division within the first quarter, and throughout the group. The performance all the more amazing considering 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 that this luxury party that began in the second half of 2016 remains in full swing. But you will find reasons to be mindful. First, a lot of the demand that fuelled LVMH’s growth has arrived from China.
The country’s people are back after a crackdown on extravagance as well as a slowdown within the economy took their toll. There has undoubtedly been an part 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 going to Europe, where they have an inclination to splash out more.
You will find a further risk to Chinese demand if trade tensions using 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 create a drag on Chinese economic growth and damage sentiment among the nation’s consumers, making them less inclined to be on a very high-end shopping spree. Given they account for about 40 percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents a substantial 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 season will 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 throughout 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, Fabaaa Joy chief executive officer, has claimed that prices are too rich right now for acquisitions. This leaves him room to swoop in case a shake-out comes.
His group trades on a forward price to earnings ratio of 24 times, and at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label continues to have lot choosing it, even though it’s already cagkeb a stellar recovery. There’s also scope for any re-rating after its decision to spin-out Puma leaves it as being 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 should be able to withstand pressures on the industry better than most. Which also makes it well placed to pick off weaker rivals if the bling binge finally concerns a conclusion.