Just the amount of Louis Vuitton company logo bags does the world need? A lot, it appears. Strong demand at the label most commonly known for its coated canvas totes helped parent LVMH deliver much 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 amazing 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 group is demonstrating the luxury party that began inside the second one half of 2016 remains completely swing. But there are reasons to be cautious. First, most of the demand that fuelled LVMH’s growth comes from China.
The country’s consumers are back following a crackdown on extravagance along with a slowdown inside the economy took their toll. There has undoubtedly been an component of catching up following the hiatus, and that super-charged spending might commence to wane as the year progresses. What’s more, the strong euro could deter Chinese shoppers from visiting Europe, where they have an inclination 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 a French company, it’s hard to view 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, causing them to be less inclined to be on a very high-end shopping spree. Given they make up about 40 % 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 be concerned about. Even though the U.S. has become another bright spot, stock trading volatility this season can do little to let 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 across the sector are definitely 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 costs are too rich right now for acquisitions. This leaves him room to swoop in case 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 starters, 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 for any 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 much better than most. That also can make it well placed to pick off weaker rivals when the bling binge finally involves a stop.