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LVMH Moet Hennessy Louis Vuitton has kicked off the luxury reporting season in style.

On Tuesday, the company said that its fashion and leather goods division recorded a 30% increase in sales excluding currency movements and mergers and acquisitions, in the three months to March 31. Analysts had expected a 23% gain.

Though the shares had fallen 13% between the start of 2022 and Tuesday’s close, they jumped 2.7% in pre-market trading on Wednesday morning.

But investors should be cautious. Despite the confident performance, the risks are rising for the bling behemoths.

Recent lockdowns in the city of Shanghai, which is the biggest contributor to Chinese luxury sales, are a worry for the sector. LVMH’s sales in China are still expanding, but Chinese consumers are travelling less, which is having an effect on its sales.

The luxury giant does not appear perturbed. Lockdowns were no worse than in 2020, CFO Jean-Jacques Guiony said on Tuesday. While it is difficult to say how long restrictions will last, he said he expects the current situation to be a short-term phenomenon. In the medium to long-term, demand should return to previous levels. “We are reasonably hopeful that this should be a moment in the history of luxury in China, and not more than that,” he told investors and analysts.

Yet there is a danger that the restrictions linger and that this weighs on the company’s full-year performance.

LVMH reported that sales in Europe had held up despite the war in Ukraine. LVMH closed its stores in Russia on March 6. But it’s worth remembering that these first-quarter results are being compared with those from the same period a year ago, when stores were closed in many countries.

Yes, expensive handbags and Swiss watches can be seen as stores of value in troubled times, but there’s always the possibility that their appeal wanes as uncertainties mount. Meanwhile, tourists from the US and parts of Asia may be reluctant to visit Europe amid geopolitical turmoil.

That leaves the US — LVMH’s biggest market — as the group’s main engine of growth. It enjoyed robust demand during the first quarter for Dior and Loewe bags as well as for Tiffany jewels. The jeweller had an “excellent” start to 2022, particularly in the US, the company said in a statement.

But this reliance on the US comes with its own perils.

Stock markets have been volatile since the start of 2022, while cryptocurrencies, which contributed to US demand in 2021, have also lost value. And while wealthy customers should be relatively immune to price increases — including mid-single-digit hikes for Louis Vuitton items — more marginal customers could be more affected by the increased cost of essentials.

LVMH is the strongest of the luxury players, benefiting from both its scale and diverse range of brands. Gucci-owner Kering SA and Cartier-owner Richemont may also be able to shrug off the effects of lockdowns in China, uncertainty in Europe and rising inflation everywhere. But companies that are still trying to turn around their fortunes, such as Burberry and Prada, are more vulnerable.

The world’s largest luxury company may have alleviated some of investors’ worst fears, but even it cannot banish them entirely.

More stories like this are available on bloomberg.com/opinion



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