Louis Vuitton Beats the Trade War

For months, the trade war between the United States and powerful nations across the world has been going strong. Week after week, it seems the war is escalated and then alleviated with the threats of new tariffs followed by an eventual agreement or ceasefire.  It seems no one has the exact solution to end the war.  Many international companies fear that trade wars could have a significant effect on their bottom line, which is leading stocks across the board to dip as the trade war escalates.  However, Louis Vuitton is not experiencing this turmoil as the brand is well-placed throughout the globe, giving it the ability to withstand all the trade war uncertainty.

Recent numbers for LVMH, the parent company for the brand Louis Vuitton, have proved that to be true.  In the first half of 2018, actual sales beat forecasted numbers as well as profit figures. The operating margin also increased by 2.9% to 21.4%, a substantial increase. Through these numbers alone it is clear that there is no sign of weakness due to a dependence on the Chinese market. While many other companies, especially those with a large international exposure, saw decreases from Chinese consumers as a result of the trade war, Louis Vuitton did not.  Rather, Louis Vuitton saw an increase in customer demand throughout the 2nd quarter.  In the last 12 months alone, the stock price for Louis Vuitton has risen 40% and they trade on a forward price-to-earnings ratio of 24 times, an absolute premium in the ‘luxury group’.

As a whole, the Louis Vuitton brand remains strong for many reasons. First off, the Louis Vuitton brand has a strong selection of top-end brands, including Christian Dior. In addition, the brand has broad geographical exposure and resides in a relatively defensive sector, the beauty sector.  Referring to the sector as defensive means it generally provides constant, stable growth.  As a result, if the trade war does escalate, Louis Vuitton could actually be perceived as a winner as many as competitors and their prices would fall while Louis Vuitton would remain relatively stable

With all that being said, it certainly is not fair to say that there are no risks ahead for the company.  Trade war tensions will not sidestep Louis Vuitton entirely, but it will not undermine the brand like it may for many other companies since the trade war affects both US and Chinese consumer confidence.  As a whole, LVMH’s recent strong performance and overall diversification will allow it to keep its head above water, despite the trade war and tariff crisis, and continue to promote its luxury brand.

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