Luxury Stocks Face Widening Divide Between Winners and Losers Amid Weakening Demand in China.

Luxury stocks in Europe face a challenging earnings season, with companies like LVMH and Kering expected to report weak sales, while others like Hermes are expected to show growth. The industry's divide between winners and losers has widened, with investors needing to be selective in their picks. The sector's outlook is crucial for Europe's equity market rally, given the weight of these companies.

The luxury sector in Europe is set to face a tumultuous earnings season, with a widening gulf between winning and losing stocks. While some companies like Burberry Group Plc and Cartier owner Richemont reported strong earnings to start the season, upcoming reports from LVMH Moët Hennessy Louis Vuitton SE, Kering SA, and Salvatore Ferragamo SpA are expected to be less promising [1].

If sales at these companies undershoot already weak forecasts, it could extend this year’s drop that has wiped out market value of as much as €175 billion ($205 billion). This divide is evident in the contrasting performances of LVMH and Hermes International SCA. While LVMH’s key Fashion & Leather Goods division is expected to have dropped 7.8% in the second quarter, Hermes is projected to report revenue growth of 12% at its leather goods division [1].

The industry's outlook is crucial for Europe’s stalled equity market rally, given the weight of these companies. Investors must be more selective about the stocks they pick. "It’s not going to be one-tide-lifts-all-boats for the sector," said Stefan-Guenter Bauknecht, a senior portfolio manager at DWS [1].

Among this year’s winners, shares in Burberry have surged more than 30%. The UK fashion brand is gaining traction with its turnaround plan and winning new customers through its outwear push [1]. However, luxury valuations are still considered too high overall even after this year’s plunge in a number of stocks. The industry has an average forward price-earnings ratio of 27, according to data compiled by Bloomberg [1].

The luxury sector is also facing headwinds from the broader economic context. Pricing power is critical, said Helen Jewell, Europe, Middle East and Africa chief investment officer at BlackRock Fundamental Equities. "The challenge for investors has been some of the names that we thought had greater brand strength, and it turned out they actually didn’t," she said [1].

Moreover, the sector is fully exposed to tariffs and the weaker dollar, making it difficult for investors. "It’s going to be quite difficult, so I stick to my underweight," said Roland Kaloyan, head of European equity strategy at Societe Generale SA [1].

The luxury sector's struggle is compounded by the ongoing U.S.-China trade war and the impact of U.S. tariffs on European companies. Jaguar Land Rover, Volvo, and other major firms are cutting operations or delaying shipments due to the tariffs [2]. The EU is racing to strike a trade deal with the U.S. before the August 1 deadline to mitigate the impact of these tariffs [2].

The luxury sector's performance will be closely watched as it plays a significant role in Europe’s equity market. Investors must navigate the challenges and select stocks wisely to avoid potential pitfalls.

References:
[1] https://www.bloomberg.com/news/articles/2025-07-23/luxury-s-split-between-winners-and-losers-is-only-getting-wider
[2] https://www.cryptopolitan.com/europe-earnings-show-tariffs-are-biting-hard/