Luxury goods revenue in 1Q26 showed a modest recovery, led by the U.S. and Asia, while the Middle East and weak travel demand weighed on the recovery slope

Overview

This report is BofA’s “temperature check” on the luxury sector’s 1Q26TD revenue, regional trends, category divergence, and company earnings forecasts. Weighted sample company revenue grew about +1.1% YoY cFX, improving 60bp from 4Q25, indicating preliminary signs of demand stabilization; however, it remains clearly below the pre-COVID 10-year CAGR, and the slowdown in 2-year/3-year CAGR shows that the recovery is still uneven and limited in slope.

Core views

The core views are: first, sector revenue has turned slightly positive but this is not a strong recovery, and early 2Q trends are broadly in line with 1Q; second, the U.S. and Asia are the main drivers of improvement, with the Americas at +6% YoY and Asia ex-Japan at +5.5% YoY; third, Europe and Japan are still dragged by weak travel demand; fourth, Middle East disruption created about a 1.3 percentage point headwind to sector 1Q organic revenue growth; fifth, the jewellery category is clearly outperforming watches and some fashion and leather goods; sixth, at the company level the report is more constructive on Richemont and WOSG, while Prada’s target price was cut due to lower earnings forecasts.

Analysis framework

The report uses weighted average revenue growth of companies that have disclosed 1Q26 revenue, constant-currency year-over-year growth, CAGR versus 2019, 2-year/3-year CAGR, regional breakdowns, company management commentary, and BAC U.S. credit and debit card spending data for cross-validation. By looking simultaneously at year-over-year trends, pre-pandemic trends, and short- to medium-term CAGR, it aims to strip out base effects as much as possible and assess the true health of demand.

Methodology notes

• Growth analysisYear-over-year growth and cFX basis

  Use constant-currency year-over-year revenue growth to measure short-term momentum for the sector and companies.

  The report shows that disclosed companies delivered weighted revenue growth of about +1.1% YoY cFX in 1Q26TD, a 60bp improvement over 4Q25, and uses LVMH F&L instead of the group-level LVMH figure to improve peer comparability.

• Cycle trend analysisCAGR vs 2019 compared with pre-pandemic 10-year CAGR

  Compare the current compound growth rate versus 2019 with the long-term pre-pandemic growth rate to judge whether the sector has truly returned to its historical trend.

  Sample companies posted a 1Q26TD CAGR of +7.7% versus 2019, a 50bp improvement over 4Q25, but still about 380bp below the pre-pandemic 10-year CAGR of +11.5%.

• Medium-term trend analysis2-year and 3-year CAGR

  Use 2-year and 3-year CAGR to reduce single-quarter base distortions and observe the medium-term demand slope.

  The report notes that the sector’s 2-year CAGR and 3-year CAGR slowed by 210bp and 300bp respectively versus 4Q, indicating a medium-term momentum slowdown beneath the apparent year-over-year improvement.

• Alternative dataBAC U.S. credit and debit card spending data

  Use bank card spending data to track real-time demand in U.S. luxury goods, jewellery, beauty, and related consumption categories.

  U.S. luxury fashion card spending rose +10% YoY in 1Q and +19% YoY through April 11, supporting the view of improving domestic U.S. demand.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Richemont

  Benefiting from jewellery strength; Buy rating maintained

  Strengths

  Jewellery operations are performing strongly, and the report forecasts Jewellery Maisons 4Q26 growth of about +9%; jewellery is the standout category in the sector.

  Weaknesses

  The 4Q26 revenue forecast for Speciality Watchmakers was cut from +6% to +2%, leading to small FY26-28E EPS downgrades.

  Comparison

  Compared with watches and some fashion and leather goods, the jewellery category is more resilient.

  Risks

  Weak watch demand, gold-price impact on gross margin, and volatility in the Middle East and travel consumption.

• Prada

  Forecasts cut; Neutral rating maintained

  Strengths

  1Q26 group revenue is forecast at +3% cFX, about 1 percentage point above consensus; MiuMiu is expected to grow +5% cFX.

  Weaknesses

  FY26-28E revenue forecasts were cut by 3-4%, EBIT and EPS by 5-6%, and the target price was lowered from HKD49 to HKD45.

  Comparison

  Relative to Richemont, the report is more cautious on Prada’s earnings elasticity.

  Risks

  Slowing brand growth, margin pressure, and valuation sensitivity to earnings downgrades.

• Watches of Switzerland

  Buy rating maintained, with modest forecast revisions

  Strengths

  The report raises FY26-28E revenue forecasts by about 1%, supported by more optimistic U.K. assumptions and FX updates.

  Weaknesses

  FY26 margin is modeled at the midpoint of guidance, with limited near-term earnings revision magnitude.

  Comparison

  Compared with luxury brand owners, WOSG is more exposed to watch retail demand and U.K. market assumptions.

  Risks

  Weaker watch demand, FX, U.K. consumption volatility, and risk around delivery against margin guidance.

• Luxury goods sector

  Sector conditions are improving moderately but the recovery is uneven

  Strengths

  1Q26TD revenue turned positive, the U.S. and Asia improved, jewellery remained strong, and U.S. card spending data accelerated.

  Weaknesses

  2-year/3-year CAGR slowed, Europe and Japan remained in negative growth, and Middle East disruption created a clear drag.

  Comparison

  The Americas and Asia outperformed Europe and Japan; jewellery outperformed watches and some fashion and leather goods.

  Risks

  Geopolitical disruption in the Middle East, weak travel demand, unstable China recovery, misreading low-base effects, and downward revisions to company earnings forecasts.

Key data

• 1Q26TD sector revenue growth+1.1% YoY cFXWeighted average of five disclosed luxury companies, improving 60bp versus 4Q25.
• CAGR versus 2019+7.7%Improved 50bp versus 4Q25, but about 380bp below the pre-pandemic 10-year CAGR of +11.5%.
• 2-year/3-year CAGR change-210bp / -300bpSlowed in 1Q26TD relative to 4Q25, showing that the medium-term trend remains under pressure.
• Americas revenue growth+6% YoYStrongest growth rate in 1Q26, about 300bp better than 4Q25.
• Asia ex-Japan revenue growth+5.5% YoY cFXImproved 400bp from +1.5% in 4Q25, mainly driven by Chinese and Korean customer cohorts.
• Europe revenue growth-2% YoY organicFurther slowed from -1% in 4Q25, mainly due to weak travel consumption.
• Japan revenue growth-1% YoY organicImproved by 2 percentage points from -3% in 4Q25, but still negative growth.
• Middle East dragabout 1.3 percentage pointsBofA estimates the drag from Middle East disruption on 1Q26 sector organic revenue growth, with about 1 percentage point likely to remain in 2Q.
• U.S. luxury fashion card spending1Q26 +10%, through April 11 +19% YoYBAC U.S. card spending data show a clear improvement in U.S. demand.
• Prada target price revisionHKD45, previously HKD49Due to cuts to FY26-28E revenue, EBIT, and EPS forecasts.

Impact & implications

For investors, the report conveys a “low-slope recovery” rather than a full reversal. Improvement in the U.S. and Asia benefits companies with strong brands, jewellery exposure, and resilient high-end customer bases, especially names like Richemont with heavier jewellery weighting; however, Middle East disruption, weak travel demand in Europe and Japan, and slowing 2-year/3-year CAGR mean that valuation recovery still needs confirmation from more quarters of data. The cut to Prada’s earnings forecasts and target price shows that the market will still penalize companies with insufficient growth slope or downward revisions to profit elasticity.

Risks

• Middle East disruption could continue to create about a 1 percentage point headwind to sector revenue in 2Q.
• Weak travel demand in Europe and Japan may continue to drag regional revenue.
• The slowdown in 2-year and 3-year CAGR indicates that medium-term demand health remains insufficient.
• If the improvement in U.S. card spending does not persist, the current positive signal may fade.
• Weakness in the watch category may pressure part of Richemont’s business and WOSG demand.
• If companies such as Prada continue to see revenue and profit forecast cuts, valuations may remain under pressure.

What to watch

• Whether 2Q26 sector revenue can reach the +3% cFX in BofA’s model.
• Whether U.S. luxury fashion and jewellery card spending continues to post double-digit growth after April.
• Whether improvements in Chinese and Korean customer cohorts can extend into 2Q and the second half.
• Whether the impact of Middle East disruption on companies such as LVMH, Hermes, and Kering eases.
• Whether travel demand in Europe and Japan recovers.
• Whether jewellery strength can continue to offset weakness in watches and fashion and leather goods.
• After Prada’s FY26-28E earnings downgrades, whether subsequent orders and margins stabilize.