Europe’s Luxury Sector Rebounds Amid Earnings Surge

Europe’s luxury sector, long troubled by sluggish growth, is showing signs of recovery after a strong earnings season. However, weak sales in China and the looming threat of U.S. tariffs pose significant challenges for even the most prestigious brands as they compete for consumer spending.

“2024 has been one of the worst years for the sector. We believe there will be a normalization in 2025, particularly in the second half,” said Simone Ragazzi, portfolio manager at Algebris Investments, during a CNBC interview.

Hermès, renowned for its Birkin bags, delivered strong fourth-quarter sales, building on its market dominance during a positive earnings season. Even struggling luxury giants like LVMH and Kering, which owns Gucci, exceeded their quarterly expectations. Cartier-owner Richemont also posted record-breaking sales for the three months ending in December.

Europe’s Luxury Sector Rebounds Amid Earnings Surge

“The worst appears to be behind us — most likely in Q3 2024 — and we’re seeing a cyclical recovery, mainly driven by U.S. and European consumers,” said Luca Solca, senior analyst for global luxury goods at Bernstein.

Despite this optimism, Chinese consumer demand — historically a major pillar for the luxury market — remains weak, and the potential for U.S. tariffs looms large. Companies like L’Oréal and Kering, with heavy exposure to China, reported declining sales in the region. The prospect of tariffs under the administration of U.S. President Donald Trump also contributed to macroeconomic uncertainty.

Zuzanna Pusz, head of European luxury goods at UBS, warned that potential tariffs could lead to higher consumer prices, as companies may try to offset costs by passing them on. However, some brands could struggle to justify price hikes after years of increases. “Firms may face difficulty offsetting a 25% tariff,” Ragazzi agreed, citing potential pain for certain luxury players.

Analysts predict that the divergence between the strongest and weakest brands will continue, with higher-quality names like Hermès, Richemont, and Burberry standing out in a challenging environment.

For the analysis and updates, visit FXAN to stay informed on the latest news and insights. Also, follow us on Instagram.