Luxury Stock Bulls Have to Wait Longer for a Revival Michael Msika and Levin Stamm It seems there’ll be few fireworks to spark a strong year-end for luxury’s biggest names, leaving investors to wait until 2027 for any potential upswing. The MSCI Europe Textiles Apparel and Luxury Goods index is down 25% this year, seemingly unable to sustain a series of technical bounces in recent months. The slump is deeper than the 21% drop by the auto sector, the Stoxx 600’s worst-performing subindex. Subdued Chinese demand and the troubled geopolitical context have combined with rising interest rates and reduced pricing power to derail hopes of a resurgence. With luxury stocks down almost 40% from their last record high, bulls will be looking to the coming earnings season for some good news to at least stem the slide.
"The Iran conflict, slower industry self-help and softer trends over the summer have further delayed the recovery," said UBS Group AG analysts led by Zuzanna Pusz. Confidence the team had in an earnings stabilization earlier this year proved premature. "We continue to view the downturn as cyclical rather than structural."
The disappointment has prompted a reset in expectations for 2027, where the "focus is increasingly shifting" to reflect weaker trends, the analysts said. They are most positive on hard luxury, favoring buy-rated Richemont SA and Watches of Switzerland Group Plc. They recently downgraded Hermes International SCA to sell because of indications that its earnings profile is becoming increasingly linked to economic cycles. In a sign of the times, shares in two former darlings of the sector have collapsed. Both LVMH and Hermes are down 40% this year, dragging their respective valuation levels to the lowest in 12 years. The fall in grace for LVMH is particularly stark: it now trades at a record 30% discount to the broader luxury sector. Its absolute forward price-to-earnings ratio has slid below 16. Meanwhile, Hermes’s premium to the sector has been vanishing fast, from 100% to just 22% in a mere 18 months.
"With a softening macro backdrop and the luxury digestion cycle lasting longer given apparent structural headwinds facing the sector, we see little scope for multiple expansion over the next 12 months," said Morgan Stanley analysts including Natasha Bonnet. "We continue to favor the names most exposed to the K-shape, driven by AI wealth creation." That view underpins overweight stances on Ferrari NV, Richemont and Brunello Cucinelli Sp A.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing