RBC Cuts LVMH, Burberry on Weak Luxury Demand
RBC downgrades LVMH and Burberry, citing soft demand in China and US, while trimming 2027 EPS forecasts for Kering, Moncler, Hermès, and Swatch.
Key points
- RBC downgraded LVMH and Burberry to sector perform, citing overly optimistic market expectations for luxury earnings.
- The brokerage reduced 2027 EPS estimates for Kering, Moncler, Hermès, and Swatch due to soft demand in China and the US.
- Luxury stocks are on track for their worst annual performance since 2008, with LVMH and Hermès down about 37% year-to-date.
RBC Capital Markets downgraded LVMH and Burberry to sector perform, arguing that current market expectations for European luxury earnings are excessively optimistic. The brokerage, as reported by FashionNetwork USA, noted that a weakening economic backdrop and softening demand trends make the projected revenue acceleration and margin expansion unlikely to materialize.
The firm led by Piral Dadhania stated that a creative push by luxury brands is insufficient to offset the tougher consumption environment. Consequently, RBC reduced its 2027 earnings-per-share estimates for Kering, Moncler, Hermès, and Swatch, describing its stance as more prudent given the lack of a clear inflection in consumer trends.
Downgrades reflect weak regional demand
The downgrade of LVMH and Burberry stems from mixed data points in China and a potential moderation in US consumer spending. RBC analysts indicated that the current luxury backdrop does not support the assumed revenue growth acceleration required to meet existing market targets. The firm emphasized that the sector requires a significant shift in trends to justify current valuations.
RBC trimmed its 2027 EPS forecasts for Kering, Moncler, Hermès, and Swatch, reflecting a more cautious view on profit margins. The analysts argued that the previous estimates assumed a level of demand recovery that is not currently visible in the data, leading to a broader reassessment of the sector's earnings potential.
Macro headwinds drive sector slump
The sector faces significant macroeconomic headwinds, including rising oil prices from geopolitical tensions and hawkish central bank responses that threaten to curb consumer spending. Persistently sluggish demand in China has further frustrated hopes for an industry recovery, contributing to a disappointing year for luxury stock investors.
A Goldman Sachs basket of luxury shares has slumped 15% in 2026, on pace for its worst annual performance since 2008. Heavyweights LVMH and Hermès have both fallen approximately 37% since the start of the year, highlighting the breadth of the downturn across the European luxury landscape.
RBC favors Ferrari and Richemont
Despite the negative outlook for major European luxury houses, RBC identified Ferrari and Richemont as its preferred names in the sector. These stocks are seen as better positioned to navigate the current economic challenges compared to the downgraded peers, offering a relative advantage in a softening market.
