Middle Eastern tycoons are "in trouble," luxury brands are "suffering," and even Hermès "can't hold out"?
The European luxury sector is facing an unprecedented collective sell-off, caught between Middle Eastern geopolitical conflicts and internal industry pressures.
This week, the first-quarter sales data released consecutively by luxury giants Hermès, Kering, and LVMH disappointed the market, leading to sharp declines in stock prices across the sector.
Prior to this, investors had already begun to reduce their holdings in luxury stocks due to rising tensions in the Middle East. The logic is that if regional conflict expands, ultra-high-end discretionary consumer goods will be the first to be cut by consumers.
(Luxury stocks have continued to drop this year, underperforming the pan-European stock index over the same period)
This round of sell-offs reflects deep market concerns—after nearly two years of stagnation, can the industry recover by 2026?
In recent years, aggressive price hikes by luxury brands have caused substantial harm to demand, and now, with both geopolitical and macro factors weighing in, the prospects for recovery have become even more uncertain.
However, analysts believe that market panic may be overdone, especially for the strongest leading stocks in the sector—current declines may provide entry opportunities.
The Halo Fades for Hermès; “Moat” Model Questioned
Long regarded as the “anchor” of the luxury sector, Hermès was not able to escape this wave either.
First quarter data shows weak demand in China and a noticeable slowdown in growth for the core handbags division.
A deeper market concern is whether Hermès’ unique business model is starting to loosen.
This model has long encouraged customers to spend heavily on other categories in stores as a prerequisite for gaining eligibility to buy Birkin and Kelly bags. If the appeal of this mechanism declines, a revaluation of Hermès’ “moat” will be inevitable.
In terms of valuation, Hermès stock is now trading at about a 20% discount to its 10-year average P/E ratio. Considering this stock is usually treated as a defensive asset in the industry, such a discount is rare.
Supporters believe Hermès’ customer base is highly concentrated among ultra-high-net-worth individuals, whose consumption willingness is barely affected by oil price fluctuations—only a stock market crash would truly restrain their spending.
So far, this hasn’t happened—the S&P 500 reached a new high again on Wednesday, April 15.
(On Wednesday, the S&P 500 rose 0.8%, hitting a new record)
LVMH Waits for New Designer's “Rescue”; Kering’s Reshaping Still a Long Road
Investors remain on the sidelines regarding the world’s largest luxury group, LVMH.
The focus is on whether the new Dior designer, Jonathan Anderson’s collections, can boost fashion and leather goods sales—the segment that provides nearly 80% of LVMH’s operating profits.
Until the new collections deliver tangible results, the group’s overall performance is expected to stay in a slump. LVMH is trading at about a 15% discount to its 10-year average P/E.
Kering's Gucci faces an even tougher situation.
First quarter sales fell 8% year-on-year; new designer Demna’s collections have been well received in the US, but failed to resonate with other key markets.
Luxury Stocks Diverge—Some Now Offer Value Opportunities
As the sector broadly declines, divergence among individual luxury stocks is emerging, providing a basis for selective positioning.
Prada currently has a P/E ratio of about 12 times expected earnings, a historic low since its 2011 IPO, compared to a historical average of about 28 times.
Brunello Cucinelli rebounded recently, driven by 14% sales growth in the first quarter, though the stock remains at a discount to its historical average valuation; its “quiet luxury” positioning, favored by Silicon Valley tech billionaires, gives it some differentiated support.
In contrast, Kering and Burberry’s transformation stories are harder to believe.
Both stocks rose last year on optimism about brand renewal prospects, but until clearer signs of successful transformation emerge, the risk-reward profile remains asymmetric.
Nonetheless, analysts believe short-term multiple negatives may have delayed recovery, but have not fundamentally changed the luxury industry’s long-term logic.
For investors with a higher risk appetite, the core bet of luxury stocks is: humanity’s desire for top-tier consumer goods will not stay dormant for long. The only question is—how much patience is needed to wait for that greed to reignite?
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