Goldman Sachs Decodes 2026Q1 Luxury: High-end & Hard Luxury Lead, Middle East Conflict Impact Controllable

Overview

This report reviews the European luxury industry performance for mid-to-early Q1 2026. Although European luxury company stock prices fell an average of 23% since the beginning of the year, significantly lagging behind the broad market, enterprises that have published financial statements show structural highlights. Goldman Sachs summarizes five key themes: moderate recovery in China market, robust US demand, high-end clientele continuing to outperform, best performance in hard luxury categories, and limited impact of Middle East conflict. The report concludes that while the overall sector faces challenges, high-end and hard luxury areas still possess structural growth opportunities, and Buy ratings are maintained for Zegna and Watches of Switzerland.

Core views

In terms of regional performance, the China market showed a trend of moderate quarter-on-quarter improvement in Q1 2026, especially during the Spring Festival, with local consumption recovering somewhat, benefiting partly from consumption spending returning from Japan. Giants such as LVMH and Kering responded well to new products in the China market, holding a cautiously optimistic stance. However, real estate price pressure remains, and brand divergence is expected to continue and widen. In contrast, the US market remains the strongest foundational market for the sector, benefiting from the 16% gain in the S&P 500 Index in 2025 and 7% year-to-date wealth effects, with widespread strong demand among high-end consumers. Most enterprises stated that trends in early Q2 were flat or slightly improved compared to Q1. Regarding segmented clientele and categories, high-end clientele continued to perform excellently. Both Brunello Cucinelli and Zegna brands achieved double-digit Direct-to-Consumer (DTC) growth, mainly driven by strong demand from high-spend clients (such as clients spending over €50,000 annually). Such clientele typically exhibit higher defensiveness, repeat purchase rates, and retention rates. In terms of categories, hard luxury (jewelry and watches) demonstrated better resilience than soft luxury. LVMH's Watch & Jewelry business achieved 7% constant currency growth in Q1, far exceeding the Group's overall 1% growth rate; Hermès jewelry business also approached double-digit growth. Industry commitment to hard luxury strategies strengthened; LVMH is committed to building Tiffany into a global category leader, while Kering also regards jewelry as a core growth pillar. Regarding geopolitical impacts, conflicts in the Middle East caused certain disruptions to Q1 results. Although the region usually accounts for mid-single to high-single digit percentages of sales, the conflict led to a decline in foot traffic of approximately 50% in March and April. However, due to strong performance in Jan-Feb, the overall impact of the conflict on Q1 results for most companies (such as LVMH, Hermès, Prada, Kering) was controlled at around 1 percentage point. Zegna and Moncler were affected less (<1%). If trends stabilize, extrapolating the Q1 impact, the potential impact on Q2 growth is estimated at approximately 3 percentage points. Additionally, secondary impacts on travel spending dragged down EMEA region performance.

Analysis framework

Goldman Sachs adopted a combined top-down and bottom-up analysis approach. First, analyzing economic data and wealth effects of major regions (China, US, Middle East) through the Macro Tracker to judge fundamental demand conditions. Second, deeply analyzing published financial reports of peer luxury companies, breaking them down by region, clientele (high-end vs. mass), and category (hard luxury vs. soft luxury) to identify structural winners. Finally, combining historical valuation comparisons (12-month forward P/E vs. long-term average) and quantitative impact of geopolitical events (such as drag on sales percentage points from Middle East conflict), deriving a balanced view on the overall sector and individual stock recommendations.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Regional demand difference analysis in luxury industry

  The report assesses the strength of demand side by analyzing wealth effects, tourism traffic, and local consumption willingness across different regions (such as China, US, Middle East), thereby judging the contribution of each region to luxury sales.

• Industry/Industrial Analysis Framework

  Clientele Segmentation Analysis Method

  Dividing consumers into High-end cohort and other groups, analyzing their defensiveness, repeat purchase rates, and price sensitivity during economic fluctuations to predict brand performance divergence.

• Valuation MethodologyPE/PEG valuation

  Comparison of 12-month forward P/E with historical mean

  Assess whether the sector's current valuation level is attractive by comparing the sector's current 12-month forward P/E (21.4x) with long-term historical average (23x) and 10-year average.

Asset mapping & comparison

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

• Zegna Group

  Beneficiary, high proportion of high-end clientele, strong DTC growth

  Strengths

  High-net-worth client stickiness, tailored services (Su Misura) enhance engagement, minimal Middle East impact

  Comparison

  More capable of resisting economic volatility compared to mass luxury brands

• Watches of Switzerland (WOSG)

  Beneficiary, preferred exposure method for hard luxury categories

  Strengths

  Over 50% revenue from Rolex, high US market proportion, no Middle East exposure

  Comparison

  Pure hard luxury distribution, benefits from category structural growth

• LVMH

  Neutral Positive, strong hard luxury performance offsets weakness in other departments

  Strengths

  Watch & jewelry business grew 7%, diverse brand portfolio

  Weaknesses

  Fashion & leather goods growth slowed, affected by Middle East and weak European tourism

  Comparison

  Group overall growth slowed, but core categories remain stable

  Risks

  Middle East escalation, European tourism recovery below expectations

• Brunello Cucinelli

  Beneficiary, representative of high-end clientele

  Strengths

  Double-digit DTC growth, excellent US and Middle East market performance, pricing power increase

  Comparison

  Leading performance in high-end niche segment

Key data

• YTD Stock Price Decline for European Luxury-23%Average decline, significantly lagging behind SXXP index +4.6%
• Current Sector Valuation21.4x12-month forward P/E (excluding Hermès and Brunello Cucinelli), lower than long-term average 23x
• LVMH Watch & Jewelry Business Q1 Growth+7%Constant currency calculation, far exceeding Group overall +1% growth rate
• Impact of Middle East Conflict on Q1 ResultsApprox. -1 percentage pointOverall impact on most groups, foot traffic drop in March-April approx. 50%
• US Stock Market 2025 Returns+16%Wealth effect factor supporting US luxury demand

Impact & implications

The report believes that although the overall sector faces valuation pressure and geopolitical disturbances, structural opportunities remain clear. The strong performance of high-end clientele and hard luxury categories indicates that companies with strong brand power and base of high net worth clients are more resilient. For investors, attention should be paid to brands with deep layouts in high-growth niche segments (such as jewelry, high-end men's wear). While the short-term shock of the Middle East conflict has been revealed, its long-term impact is limited if the situation does not deteriorate further. The moderate recovery of the China market provides a certain floor support for the sector, but changes in real estate wealth effects need to be closely monitored.

Risks

• Middle East geopolitical conflict escalates further, causing significant Q2 sales decline
• China real estate market remains depressed, suppressing wealth effects and local consumption
• Global economic growth slowdown, affecting high-end consumer disposable income
• European tourism traffic recovery below expectations, impacting sales of brands dependent on tourists

What to watch

• Whether Middle East sales trends stabilize in Q2
• Changes in property prices and wealth assets in tier-one Chinese cities
• Degree of sales divergence between high-end and mass clientele
• Sustained growth momentum in hard luxury categories (jewelry, watches)