Just how many Louis Vuitton company logo purses does the world need? A great deal, it seems. Strong demand at the label most commonly known for its coated canvas totes helped parent LVMH deliver a lot better than expected organic sales increase in its fashion and leather goods division in the first quarter, and throughout the group. The performance all the more amazing considering 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 this luxury party that began inside the second 50 % of 2016 is still in full swing. But you can find good reasons to be aware. First, most of the demand that fuelled LVMH’s growth comes from China.
The country’s people 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 after the hiatus, and that super-charged spending might start to wane because the year progresses. What’s more, the strong euro could deter Chinese shoppers from going to Europe, where they tend 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 actually a French company, it’s hard to find out that these particular issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, which makes them less inclined to be on a higher-end shopping spree. Given they account for about 40 % of luxury goods groups’ sales, based on analysts at HSBC, this represents a substantial risk for the industry.
But there are many regions to worry about. Although the U.S. has become another bright spot, stock market volatility this year will 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 this is a story of mega-brand dominance that’s left many smaller labels behind. Bernard Arnault, Fabaaa Joy chief executive officer, has said that charges 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 also at a deserved premium to Kering. True, that gap could narrow – for one, the group’s Gucci label really has lot opting for 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, and with operations spanning cosmetics to wines and spirits, it should be able to withstand pressures on the industry better than most. That also causes it to be well placed to pick off weaker rivals if the bling binge finally involves a stop.