European luxury and sporting goods sector Report Interpretation

Overview

JPMorgan’s Q2 2026 review finds that European luxury demand improved across most companies and regions, but the recovery remains fragile. The report argues that category exposure, brand execution and regional demand will continue to create large differences in outcomes through the second half.

Core views

Q2 results showed a broad improvement in luxury, with sector growth accelerating by roughly 300bps sequentially on average, excluding Moncler because of seasonal comparability. The US wealth effect and strength in Japan and South Korea supported momentum, while leather goods began to bottom as consumers responded to product newness. However, JPMorgan stresses that the sector is not uniformly recovering: jewellery and high-end ready-to-wear remained the clear outperformers; better-managed soft-luxury brands such as Hermès, Prada and Ferragamo formed a middle group; and LVMH Fashion & Leather Goods and Kering remained laggards. Large soft-luxury groups still had flat to negative volumes despite the favourable wealth backdrop, leaving the overall improvement volatile and fragile. Category results support this differentiation. Richemont’s Jewellery Maisons grew 24% ex-FX against JPMorgan’s 14% estimate, while Brunello Cucinelli retail grew 19% versus a 15% estimate and Zegna brand retail grew 18% versus 15%. In leather goods, Prada Group grew 7% organically versus 3% expected, with the Prada brand accelerating from flat growth in Q1 to 6% in Q2. Gucci retail improved from -9% in Q1 to -2% ex-FX, but this remained negative and benefited from an extremely easy comparison base. LVMH Fashion & Leather Goods grew only 1% ex-FX; Dior improved materially, while Louis Vuitton remained subdued on volumes and mix. Hermès leather goods improved to 10% ex-FX, but management’s commitment to 6% annual volume growth raised questions about whether double-digit growth can be sustained. Regional conditions were supportive in Q2 but less certain into Q3. The US was the strongest region, with several brands delivering solid double-digit growth and Richemont, Brunello Cucinelli and Zegna growing by more than 20%; Prada Group was up 19%. Yet Chase data showed July total consumer spending growth slowing to 3.8% year-on-year from 6.0% in June and 5.4% in Q2, while discretionary spending slowed to 3.7% from 6.4% in June. Japan remained strong, aided by local demand and tourism; department-store sales averaged 7% growth in July, and Japan was about 20% cheaper than China for soft luxury and 12% cheaper for hard luxury, versus gaps of 9% and 3% respectively a year earlier. South Korea was also a major driver, but a roughly 28% pullback in the Kospi since 1 June and a 7% strengthening of the won against the euro could reduce wealth effects and tourist price arbitrage. China and Asia ex-Japan remained mixed and difficult to read, with consumer traffic, event-driven purchasing and volatility still recurring themes. The second half faces tougher comparisons: Q3 comparisons are nearly 500bps tougher on average and as much as 800bps for Richemont. JPMorgan notes that two-year comparisons can give a more useful context because Q3 2024 saw a sudden decline in Chinese demand. On this basis, Moncler has the most favourable Q3 setup, with a comparison 700bps easier sequentially on a two-year basis despite being 100bps tougher year-on-year. Current trading comments were mixed: Brunello Cucinelli cited continued positive July sales and order intake, Zegna saw continuing momentum, while Kering guided to a Q3 slowdown, Ferragamo cited weaker July US trading, and Prada and Moncler reported uneven early-summer trends. Profitability was generally better than expected in H1, helped by improved sales, tight cost control and less severe forex pressure. Gross margins improved sequentially at Hermès, Prada excluding Versace dilution, Ferragamo and Moncler, supported by sell-through, working-capital management and full-price sales. Exceptions were Kering, where gross margin fell 110bps on negative mix but was offset by opex savings, and Swatch, which faced Swiss-franc pressure and production deleverage. JPMorgan raised sales estimates by 1-5% and EBIT estimates by 1-9% across most companies to reflect stronger top-line trends and forex, but cut Swatch EBIT estimates after its large H1 miss and weaker H2 margin outlook. The firm is now broadly aligned with consensus for most names, sees the most upside in Richemont, Prada and Moncler, and remains double digits below consensus on Swatch and Burberry.

Analysis framework

JPMorgan compares Q2 company results with its estimates, tracks sequential and two-year sales growth by category and geography, reviews management trading comments, and combines consumer-spending, department-store, tourism, price-differential, margin and valuation data to update forecasts and relative preferences.

Methodology notes

• Industry AnalysisSupply-demand framework

  Regional demand, consumer wealth effects, tourism, currency-driven price arbitrage and category demand are assessed together.

  The report explains luxury sales by linking local and tourist spending, relative prices, consumer wealth and brand/category execution to reported growth.

• Industry AnalysisVolume-price decomposition

  Growth is assessed through volumes, mix and pricing.

  JPMorgan distinguishes healthier jewellery and high-end ready-to-wear growth, where volume, mix and pricing contributed, from leather goods, where mix and pricing remain constrained and volume growth depends more on execution.

• Valuation methods

  Relative valuation comparison using EV/Sales, EV/EBIT, P/E, margins and EPS CAGR.

  The report presents historical and peer valuation tables to compare luxury companies, rather than assigning a report-wide target price.

Asset mapping & comparison

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

• Richemont

  Top pick supported by jewellery exposure and superior execution.

  Strengths

  Jewellery Maisons grew 24% ex-FX and the company showed strong momentum across brands, regions and channels.

  Weaknesses

  Faces particularly tough Q3 comparisons.

  Comparison

  Outperformed the broader luxury sector and other jewellery peers in Q2.

  Risks

  Tough Q3 comparisons and volatile regional demand.

• Moncler

  Preferred into H2 because of favourable two-year comparisons and approaching peak season.

  Strengths

  JPMorgan views its risk/reward as attractive; Q3 comparison is 700bps easier sequentially on a two-year basis.

  Weaknesses

  Q2 performance did not improve sequentially, partly due to seasonality.

  Comparison

  Has the most favourable Q3 comparison setup among the names discussed.

  Risks

  Weaker European tourism and uneven current trading.

• Prada

  Preferred soft-luxury name.

  Strengths

  Group sales grew 7% organically versus 3% expected; the Prada brand accelerated to 6% growth.

  Weaknesses

  China remains difficult to read and traffic conditions are challenging.

  Comparison

  Delivered the strongest positive surprise within leather goods.

  Risks

  Soft early-July trading and regional demand volatility.

• Brunello Cucinelli

  Preferred high-end ready-to-wear exposure.

  Strengths

  Retail sales grew 19% versus 15% expected; management raised guidance to 10-11% from 10%.

  Weaknesses

  Asia decelerated because of Middle East disruption.

  Comparison

  Continued to outperform most luxury peers in high-end ready-to-wear.

  Risks

  Geopolitical disruption and tougher comparisons.

• Zegna

  Preferred high-end ready-to-wear exposure.

  Strengths

  Brand retail grew 18% versus 15% expected, supported by broad regional double-digit growth.

  Weaknesses

  Early Q3 commentary noted softer European trends.

  Comparison

  Outperformed JPMorgan expectations and accelerated from Q1.

  Risks

  European softness and regional volatility.

• Kering

  Underweight turnaround exposure.

  Strengths

  Gucci improved sequentially, with retail sales at -2% ex-FX versus -5% expected.

  Weaknesses

  Growth remains negative, recovery is not expected to be linear, and gross margin fell 110bps.

  Comparison

  Improved from a weak base but remained behind stronger jewellery and high-end peers.

  Risks

  Execution risk, tougher H2 comparisons, China recovery uncertainty and downside to estimates.

• Burberry

  Underweight amid macro uncertainty and turnaround execution risk.

  Weaknesses

  JPMorgan remains below consensus and notes exposure to weaker tourism flows.

  Comparison

  Lagged the preferred names in the report’s relative positioning.

  Risks

  Macro uncertainty, turnaround execution risk and downside to estimates.

• Swatch

  Underweight after an H1 earnings miss.

  Strengths

  Watches showed improved sales growth in Q2.

  Weaknesses

  H1 EBIT missed JPMorgan estimates by 63%; Swiss-franc pressure and production deleverage weighed on margins.

  Comparison

  The only company for which JPMorgan reduced EBIT estimates after Q2.

  Risks

  H2 margin pressure and downside to estimates.

Key data

• Average sector growth acceleration~300bps sequentially in Q2 2026Excluding Moncler for seasonal comparability.
• US discretionary card spending3.7% year-on-year in July 2026Down from 6.4% in June and 5.5% in Q2.
• Richemont Jewellery Maisons sales+24% ex-FXVersus JPMorgan estimate of +14%.
• Prada Group organic sales+7%Versus JPMorgan estimate of +3%; Prada brand accelerated to +6% from flat in Q1.
• Q3 sector comparisonsNearly 500bps tougher on averageRichemont faces comparisons as tough as 800bps.
• Forecast revisionsSales +1% to +5%; EBIT +1% to +9%Raised for most names; Swatch EBIT estimates were reduced.
• Japan-China price gapJapan ~20% cheaper for soft luxury and ~12% cheaper for hard luxuryCompared with 9% and 3%, respectively, at the end of Q2 2025.

Impact & implications

The report sees the sector moving closer to the end of its negative earnings cycle, but not yet into a broad, durable recovery. It argues that jewellery exposure, high-end positioning, product execution and resilience to regional volatility are more important than a simple sector-level demand call.

Risks

• US discretionary spending slowed in July, potentially weakening a key Q2 growth driver.
• A roughly 28% Kospi pullback and a 7% won appreciation against the euro could reduce Korean wealth effects and tourist price arbitrage.
• Q3 comparisons become materially tougher, while demand trends in China remain volatile and event-driven.
• Large soft-luxury groups still face flat to negative volumes, and turnaround recoveries at Kering and Burberry carry execution risk.

What to watch

• July and subsequent US Chase card-spending trends, particularly discretionary categories.
• Demand from American, Korean and Japanese consumer cohorts through Q3 and H2.
• Korean equity-market performance and won/euro moves that affect wealth and price arbitrage.
• Tourism flows in Europe and Japan, especially spending by American, Chinese and Middle Eastern visitors.
• Whether leather-goods volume, mix and pricing improve sufficiently to support a sustained recovery.
• Company commentary on Q3 trading, comparisons and margin progression.