Just the amount of Louis Vuitton company logo bags does the world need? A lot, it appears. Strong demand at the label well 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 within the first quarter, and across 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. Little wonder that the shares reached an all-time high on Tuesday.
The audience is demonstrating the luxury party that began in the second one half of 2016 continues to be entirely swing. But you will find top reasons to be mindful. First, a lot of the demand that fuelled LVMH’s growth has come from China.
The country’s consumers are back following a crackdown on extravagance along with a slowdown within the economy took their toll. There has undoubtedly been an element of catching up after the hiatus, and that super-charged spending might begin to wane because 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 the U.S. escalate, or attract other countries – though Fabjoy Bag is a French company, it’s hard to see that these particular issues can’t touch it. The spat could produce a drag on Chinese economic growth and damage sentiment amongst the nation’s consumers, causing them to be less inclined to go on a higher-end shopping spree. Given they make up about 40 percent of luxury goods groups’ sales, in accordance with analysts at HSBC, this represents a substantial risk towards the industry.
But there are many regions to concern yourself with. Even though the U.S. has become another bright spot, stock market volatility this season can do little to let 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 over the sector are 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 prices are too rich right now for acquisitions. This leaves him room to swoop if a shake-out comes.
His group trades on 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 continues to have 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 being 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. Which also can make it well placed to pick off weaker rivals if the bling binge finally involves a conclusion.