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 covered canvas totes helped parent LVMH deliver much better than expected organic sales growth in its fashion and leather goods division in the first quarter, and across the group. The performance all the more impressive considering that it compares with a very 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 half of 2016 continues to be entirely swing. But there are reasons to be mindful. First, a lot of the demand that fuelled LVMH’s growth has come from China.
The country’s people are back after having a crackdown on extravagance along with a slowdown within the economy took their toll. There has undoubtedly been an component of catching up 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 going to Europe, where they have an inclination to splash out more.
There is 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 view that these issues can’t touch it. The spat could create a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, making them less inclined to go on a higher-end shopping spree. Given they account for about 40 percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents an important risk towards the industry.
But there are many regions to be concerned about. Though the U.S. has been another bright spot, stock market volatility this year can 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 across the sector would be the highest in 12 years, but this can be 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 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 still has lot choosing it, even though it’s already cagkeb a stellar recovery. There’s also scope for a re-rating after its decision to spin-out Puma leaves it as a 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 much better than most. Which also can make it well placed to pick off weaker rivals when the bling binge finally comes to a conclusion.