Just the number of Louis Vuitton monogrammed bags does the world need? A great deal, it seems. Strong demand at the label well known for its covered 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 impressive considering the fact 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 audience is demonstrating that this luxury party that began within the second one half of 2016 continues to be entirely swing. But there are good reasons to be mindful. First, a lot of the demand that fuelled LVMH’s growth has arrived from China.
The country’s consumers are back after having 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 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 is a further risk to Chinese demand if trade tensions using the U.S. escalate, or attract other countries – though Fabjoy Bag is really a French company, it’s hard to see 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, making them less inclined to be on a high-end shopping spree. Given they make up about forty percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents a significant risk towards the industry.
But there are other regions to concern yourself with. Though the U.S. continues to be another bright spot, stock market volatility this coming year will do little to encourage the feeling 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 over the sector are 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 costs are too rich right now for acquisitions. This leaves him room to swoop if 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 just one, the group’s Gucci label still has lot choosing 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 have the capacity to retain its lead. Given its scale, with operations spanning cosmetics to wines and spirits, it must be able to withstand pressures on the industry much better than most. Which also causes it to be well placed to pick off weaker rivals if the bling binge finally comes to a conclusion.