Just how many Louis Vuitton monogrammed bags does the world need? A whole lot, it appears. Strong demand at the label well known for its covered canvas totes helped parent LVMH deliver better than expected organic sales increase in its fashion and leather goods division within 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. Little wonder that the shares reached an all-time high on Tuesday.
The group is demonstrating the luxury party that began in the second one half of 2016 is still entirely swing. But there are good reasons to be aware. First, most of the demand that fuelled LVMH’s growth has come from China.
The country’s individuals are back after having a crackdown on extravagance as well as a slowdown inside the economy took their toll. There has undoubtedly been an part of catching up right after the hiatus, which super-charged spending might commence to wane because 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.
You will find a further risk to Chinese demand if trade tensions using the U.S. escalate, or draw in other countries – though Fabjoy Bag is really a French company, it’s hard to see these issues can’t touch it. The spat could develop a drag on Chinese economic growth and damage sentiment among the nation’s consumers, which makes them less inclined to go on a higher-end shopping spree. Given they take into account about 40 % of luxury goods groups’ sales, based on analysts at HSBC, this represents an important risk to the industry.
But there are other regions to concern yourself with. Even though the U.S. continues to be another bright spot, stock exchange volatility this season can do little to encourage the sense 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 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 charges are too rich right now for acquisitions. This leaves him room to swoop when a shake-out comes.
His group trades on the 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 opting 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 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 a lot better than most. Which causes it to be well placed to pick off weaker rivals if the bling binge finally comes to a conclusion.