European luxury 2Q preview: Demand remains subdued, while 2H recovery expectations support quality leaders
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European luxury 2Q preview: Demand remains subdued, while 2H recovery expectations support quality leaders
Deutsche Bank expects constant-currency growth for European luxury in 2Q to show limited improvement from 1Q, with China, the Middle East, and tourism traffic remaining key drags; however, low valuations and a potential 2H recovery make LVMH the preferred recovery exposure.
- Industry constant-currency growth in 2Q is not expected to improve significantly from 1Q. Recent company communications have lowered most investor expectations, with only LVMH and Richemont seeing pre-earnings expectations raised.
- Jewellery remains the most preferred luxury category. Richemont benefits from strong growth at the Jewellery Maisons and lower gold prices, but the investor bar has risen meaningfully, narrowing the scope for short-term outperformance.
- Macroeconomic pressures remain concentrated in Chinese imports and consumer confidence, Middle Eastern customers, and European tourism traffic; North America and South Korea are performing relatively strongly but have not clearly accelerated.
- LVMH is viewed as the preferred way to participate in the sector recovery. The report forecasts 2Q group sales of -1.0% year on year, constant-currency growth of +2.9%, and constant-currency growth of +1.0% for Fashion & Leather Goods.
- Moncler and Kering are identified as relatively less preferred names: Moncler is affected by seasonality and insufficient differentiation in summer products, while Kering still needs more evidence of a Gucci recovery.
Report interpretation
Overview
This report is Deutsche Bank’s preview of the European luxury industry’s 2Q26 earnings season. The core view is that 2Q will not bring a significant sequential improvement in constant-currency growth, as Middle East disruption, weak tourism traffic, and the lack of meaningful improvement in China continue to weigh on industry performance; however, sector sentiment and valuations are near lows, and high-quality leaders could see a valuation recovery if the industry backdrop improves in 2H. The report covers Richemont, Burberry, Moncler, Zegna, LVMH, Kering, Hermes, and Brunello Cucinelli.
Core views
Deutsche Bank believes investor expectations have broadly declined following recent company communications, with LVMH and Richemont as exceptions, as pre-earnings expectations for both are higher. LVMH remains the preferred way to participate in the luxury recovery because historically it has been more likely to receive re-rating and earnings upgrades when growth reaccelerates from low levels. Jewellery is the preferred category. Richemont offers high-quality exposure through its Jewellery Maisons, but the implied investor bar for JM growth may be above +16% in constant currency, increasing the risk of a short-term share-price reaction. Kering and Moncler are relatively less preferred: the former lacks sufficient evidence of a Gucci recovery, while the latter is affected by seasonal deceleration and insufficient differentiation in summer products.
Analysis framework
The report is structured around a 2Q26 earnings preview, combining pre-earnings company communications, Bloomberg consensus estimates, Deutsche Bank’s own forecasts, regional macro indicators, luxury-goods import tracking, consumer confidence, foreign exchange, and valuation multiples to compare investor expectation thresholds, constant-currency sales growth, margin trends, valuation positions, and potential catalysts for each company.
Methodology notes
cFX growth versus investor bar
Compares Deutsche Bank forecasts, consensus expectations, and the growth threshold investors may actually be expecting to assess whether share prices are likely to beat or miss expectations when earnings are released.
Low valuation and recovery re-rating
The report compares current P/E multiples with historical levels and pre-earnings-season levels, concluding that many sector stocks are below historical levels and that an improvement in growth could trigger rotation and re-rating.
Tracking of Chinese, US, European, Middle Eastern, and tourism spending
Uses Chinese luxury-goods imports, consumer confidence, employment sentiment, foreign exchange, and tourism flows to assess whether regional demand is a drag on or support for 2Q sales.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- LVMH / MC FPPreferred exposure to the industry recovery
- Strengths
- Valuation is near lows, and historically the company has been more likely to receive re-rating and earnings upgrades when growth reaccelerates; Dior recovery and the launch of new products in 2H could improve F&L.
- Weaknesses
- The investor threshold for 2Q F&L constant-currency growth may have risen to approximately +2%, above DBe’s +1%.
- Comparison
- Compared with other diversified luxury groups, the report still views LVMH as the best vehicle for participating in the recovery.
- Risks
- Weakness among Chinese and US aspirational customers, tourism and Middle East drags, and divergence between Dior and LV performance.
- Richemont / CFR SWPreferred jewellery exposure
- Strengths
- Strong growth at the Jewellery Maisons, higher quality of the jewellery category, and potential earnings-upgrade room from lower gold prices.
- Weaknesses
- After strong year-to-date share-price performance, the investor threshold has risen significantly, limiting short-term upside.
- Comparison
- Superior to general luxury exposure, but more difficult to exceed expectations in the short term than previously.
- Risks
- JM growth below elevated expectations, dependence of Asian jewellery demand on South Korea, weak China, and soft European tourism spending.
- Hermes / RMS FPHigh-quality defensive name and potential buying opportunity
- Strengths
- The brand remains intact, high-end customers are stable, and a return of constant-currency growth toward double digits could drive multiple expansion.
- Weaknesses
- Weak 1Q and 2Q constant-currency growth has lowered consensus expectations, prompting investors to question the long-term growth algorithm.
- Comparison
- Higher quality than most peers, but it now needs to demonstrate a 2H growth recovery.
- Risks
- Tourism, aspirational customers, and Middle East demand; secondary-market dilution effects; and the pace of leather-goods supply.
- Kering / KER FPHold name with insufficient recovery evidence
- Strengths
- Cost savings and support from the jewellery and eyewear businesses remain positive.
- Weaknesses
- Gucci brand momentum is rebuilding slowly, China remains significantly down, US improvement is limited, and the valuation already reflects some turnaround expectations.
- Comparison
- Compared with LVMH, recovery visibility and execution certainty are lower.
- Risks
- Gucci failing to return to positive constant-currency growth in 2026, margin improvement below expectations, Middle East drag, and the impact of store closures on revenue.
- Moncler / MONC IMRelatively less-preferred Hold name
- Strengths
- The Moncler brand and Stone Island continue to grow positively, while first-quarter performance was strong.
- Weaknesses
- Insufficient differentiation in 2Q spring/summer products, fewer Chinese tourists in Europe affecting purchases of winter collections, and a relatively weak summer cycle.
- Comparison
- Compared with LVMH and Richemont, the company lacks a stronger short-term catalyst.
- Risks
- US and Chinese demand, European tourism, spring/summer collection relevance, and the impact of key events and store openings.
- Zegna / ZGN USBuy name with attractive high-end customer exposure
- Strengths
- DTC continues to accelerate, brand elevation and channel optimization are being executed well, and Tom Ford Fashion is benefiting from Haider Ackermann.
- Weaknesses
- The share price has risen substantially year to date, and DTC growth may cool in 2Q due to the Middle East impact.
- Comparison
- Still one of the preferred recovery stories, but not the top 2Q pick.
- Risks
- Middle East drag, the pace of Tom Ford infrastructure investment, Thom Browne brand momentum, and channel adjustments.
- Brunello Cucinelli / BC IMResilient-growth and valuation-recovery name
- Strengths
- A high-end customer base and high-quality contemporary ready-to-wear support a relatively low-cyclicality growth algorithm.
- Weaknesses
- 2Q constant-currency growth is expected to slow from high levels to approximately +10%.
- Comparison
- Compared with brands that are more macro-sensitive, the report believes its resilience is undervalued by the market.
- Risks
- North American and Asian high-end RTW demand, the impact of the Middle East on Asian growth, wealth effects in South Korea and Japan, and margins following capacity expansion.
- Burberry / BRBY LNName to monitor for transformation execution
- Strengths
- Improving brand momentum is translating into stronger LFL growth in key regions.
- Weaknesses
- High FY26 expectations, cautious guidance, and the lack of earnings upgrades are weighing on the share price; the extent of 2Q improvement may be limited.
- Comparison
- Shows some transformation progress compared with Kering, but still needs to prove its growth and profit guidance.
- Risks
- Middle East and tourism-flow drags, US and Chinese demand, RTW and summer capsule performance, and FY27 EBIT guidance.
Key data
- Industry 2Q view2Q constant-currency growth is unlikely to improve significantly from 1QThe Middle East impact remains, tourism traffic is weak, and China has shown no meaningful improvement.
- LVMH 2Q forecastGroup sales -1.0% year on year, constant currency +2.9%, revenue €19,306mF&L constant-currency growth of +1.0%, below the investor threshold of approximately +2%.
- Richemont 2Q forecastGroup sales +9% year on year, constant currency +10%, revenue €5,898mJewellery Maisons constant-currency growth is expected at +12%, versus consensus of approximately +13%, while investors may expect approximately +15% or higher.
- Hermes 2Q forecastSales +4.3% year on year, constant currency +6.3%, revenue €4,072mThe report believes 2H constant-currency growth could recover from approximately 6% in 1H to the high single digits.
- Kering 2Q forecastSales flat year on year, constant currency +1.1%, revenue €3,627mGucci is expected to deliver constant-currency growth of -5%; evidence of a recovery remains insufficient.
- Moncler 2Q forecastGroup sales +2.7% year on year, constant currency +5.4%, revenue €408mInsufficient spring/summer product differentiation and weak European Chinese tourism are driving sequential deceleration.
- Zegna 2Q forecastGroup sales +5.6% year on year, constant currency +7.6%, revenue €495mDTC growth remains solid, but the Middle East impact is cooling 2Q growth.
- Brunello Cucinelli 2Q forecastSales +9.2% year on year, constant currency +10.2%, revenue of approximately €374mThe report is positive on its high-end customer base and the resilience of its ready-to-wear products.
- Industry marginsSector EBIT margin is expected to decline by approximately 20bpsPrimarily due to operating deleverage at key companies.
Impact & implications
For investors, the report indicates that the industry remains in a period of low growth and high uncertainty in the short term, making the earnings season more likely to trade around expectation thresholds rather than absolute growth. If 2Q merely meets modest expectations, share-price reactions will depend on management guidance regarding China, the United States, tourism, the Middle East, and improvement in 2H. LVMH, Hermes, Richemont, and Brunello Cucinelli represent quality and recovery exposure; Kering and Moncler require more evidence of brand momentum, Gucci repair, or seasonal improvement.
Risks
- Chinese luxury demand and import data remain weak, offsetting support from the United States and South Korea.
- Middle Eastern customers and the Middle East cluster remain a low-single-digit drag from June through July.
- Weak European tourism traffic affects sales performance for multiple brands in Europe.
- Investor expectation thresholds for LVMH F&L and Richemont Jewellery Maisons are too high, potentially pressuring share prices even if fundamentals remain sound.
- Insufficient spending power among aspirational customers in China and the United States is weighing on the Fashion & Leather Goods recovery.
- Operating deleverage drives lower margins in 1H, potentially delaying earnings upgrades.
- Brand momentum and sales improvement at transformation names such as Gucci and Burberry fall short of expectations.
- Changes in gold prices, foreign exchange, and tourism spending affect jewellery and cross-border luxury consumption.
What to watch
- Whether LVMH F&L constant-currency growth in 2Q approaches or exceeds the investor-implied threshold of approximately +2%.
- Whether Richemont Jewellery Maisons growth can remain in double digits and explain the contributions from price, mix, and volume.
- Whether China continues to weigh on the industry and whether the United States and South Korea can continue to offset it.
- The actual impact of tourism traffic and Middle Eastern customers from June through July.
- Whether Hermes 2H constant-currency growth can recover from approximately 6% in 1H to the high single digits.
- Sequential improvement at Gucci in China and the United States, the impact of store closures, and visibility on a return to positive growth in 2026.
- Performance of Moncler’s spring/summer collections, Stone Island, and European tourism spending.
- The extent of Zegna’s DTC slowdown, progress on Tom Ford investments, and customer acquisition at Thom Browne.