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Investing.com -- European luxury stocks continue to struggle as earnings momentum remains largely negative, weighed down by foreign exchange effects and softening demand signals.
Over the past month, the luxury sector has underperformed, with share prices flat compared to a 6% gain for the MSCI Europe index.
According to analysts at RBC Capital Markets, “recent datapoints and commentary imply no improvement and potential deceleration in 2Q25,” adding that a defensive positioning remains the preferred strategy.
The broker highlights Hermes International (EPA:HRMS) and Ferrari NV (NYSE:RACE) as favored defensive plays due to their strong margins and resilient revenues.
Among major players, LVMH (EPA:LVMH) and Burberry (LON:BRBY) are seen as turnaround opportunities, with LVMH benefiting from its diversified brand portfolio and Burberry offering “a credible turnaround strategy.”
However, risks remain, with RBC analysts warning that “earnings growth estimates may prove optimistic” for names like Kering (EPA:PRTP), Burberry and LVMH due to the subdued demand environment.
Soft luxury continues to face pressure, while jewellery demand has shown more resilience. Richemont (SIX:CFR), for example, confirmed ongoing strength in jewellery through its Cartier and Van Cleef & Arpels brands.
“Modest recent (April/May) price increases at Cartier and Van Cleef & Arpels should provide further top line support in FY26E, which is more than we expect for most soft luxury brands (except Hermes),” analysts led by Piral Dadhania said in a note.
Share price momentum has also deteriorated across much of the space. In the last three months, the luxury sector is down 19%, reflecting concerns over U.S. tariff risks and consumer demand.
Watches Of Switzerland Group PLC (LON:WOSG), Kering SA (EPA:PRTP) and Swatch Group AG (SIX:UHR) are among the names showing negative price action and earnings revisions, with RBC remaining cautious on fiscal 2026 (FY26) trends for Swiss watch demand.
Still, not all signals are negative. RBC points to some relative upside in LVMH, Burberry, and EssilorLuxottica SA (EPA:ESLX) following recent de-rating.
The analysts also upgraded Pandora (OTC:PNDRY) A/S (CSE:PNDORA) to Sector Perform and initiated coverage on Brunello Cucinelli (BIT:BCU), although with a more neutral stance. “Investor feedback largely in agreement that a more defensive tilt is still preferred in luxury,” the note said.
Meanwhile, the sporting goods sector setup is more compelling to RBC. The brokerage favors Adidas AG (ETR:ADSGN) (OTC:ADDYY) as its top pick, citing “strong brand momentum, self-help, improving product, weak competition and a favourable fashion cycle.”
A recent visit to the company’s headquarters left analysts confident that “the product engine is firing on all cylinders,” with further gross margin upside potential. Adidas’ valuation is also seen as compelling, the analysts said.