After the fourth-quarter 2024 earnings season, the worst appeared to be over as luxury headed for a gradual recovery. But with the US market deteriorating and no improvement in China, the long-awaited rebound is in limbo. However, US President Donald Trump’s backpedalling on global tariffs (save for China) and the announcement of the long-awaited Prada-Versace deal has helped to reinvigorate the sluggish market ahead of next week’s first-quarter reports.
Companies saw steep gains in the stock market on Wednesday, after Trump backed down on aggressive tariffs with one exception: China.
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“The first quarter [ended 31 March] was pretty much in the bag before the macro fears started to hit hard,” says Erwan Rambourg, HSBC global head of consumer and retail research. US President Trump announced tariffs of 20 per cent on products from the EU and 31 per cent from Switzerland on 2 April. They went into effect on 9 April before he announced a 90-day pause the same day, flattening tariffs to 10 per cent for most countries, leading luxury stocks to jump. On Thursday, LVMH and Richemont were up 5 per cent, and Kering and Hermès up 3 per cent.
Before Trump reversed course on global tariffs, HSBC brought its growth estimate for the luxury sector in 2025 down to zero, from 5 per cent forecasted in February, on the back of the Americans’ luxury consumption slowing. “We were hoping we would have the dust settled, but because of all of this uncertainty, we cut estimates across the board for luxury,” Rambourg says, adding that the darkened forecast is not related to Q1 performances.
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“I believe that first-quarter results will continue to show a subdued demand environment and no major changes in brand momentum trajectories,” says Mario Ortelli, managing director of Ortelli Co. “Kering, Ferragamo, Burberry will continue to suffer, while Hermès, Prada and Brunello Cucinelli will do better. LVMH will probably be mid-way between the two groups.”
A tale of two halves
The basis of year-on-year comparison in Q1 is difficult, notably with the Chinese consumers. “You might remember last year in Q1 24, LVMH had said that the fashion and leather goods division was up double digits with the Chinese cluster,” Rambourg says.
And while the year began with strong growth in the US, starting mid February, equity markets and consumer confidence started to drop thanks to the looming prospects of tariffs. “We’ll have seen two halves with the American cluster, a very exuberant first six weeks where growth was really strong and the back end of the quarter where things have moderated quite dramatically,” says Rambourg.
LVMH, which just moved its earnings publication forward a day to 14 April, will set the tone for the sector. Barclays expects group sales to reach €21.2 billion and growth to be flat at constant exchange rates. For the all-important fashion and leather goods division, Barclays expects organic growth to decline by 1 per cent, which is in line with the division’s growth in the fourth quarter of 2024. It expects organic growth of -6 per cent in wine and spirits, +2 per cent in watches and jewellery as well as in perfume and cosmetics and +3 per cent in selective retailing.
For its part, HSBC expects growth of the fashion and leather goods division to be flat in Q1. “We’re at the higher end of the expectations,” says Rambourg. “The reason for that is we’re a bit more optimistic than most regarding Dior. With quite a few launches, notably in leather goods at more palatable price points like the D-Journey range, they’re bringing prices down somewhat but they’re increasing the traffic and the interest in the brand. That should help stabilise things.”
He expects attention during the analyst call to focus on the uncertainties around tariffs, whether LVMH is willing to produce more in the US — Louis Vuitton and Tiffany already produce partly in the country — as well as plans for pricing strategies. He also expects questions on Dior, looking for an update on “design, management, product changes. That’s what a lot of investors are either hopeful or fearful about,” Rambourg notes. LVMH’s second largest fashion brand after Vuitton recently appointed a deputy CEO, Pierre-Emmanuel Angeloglou, reporting to CEO Delphine Arnault, and is in the midst of a creative transition following the departure of its menswear artistic director Kim Jones.
As for Louis Vuitton, Rambourg expects sales to be slightly up in the quarter, driven notably by the success of the Murakami collection. Smaller brands including Kenzo, Givenchy and Marc Jacobs are likely to be slightly down, he predicts, while Loro Piana, Loewe and Rimowa will be slightly up, “even though the basis of comparison for them is becoming tougher”, he adds.
HSBC expects Kering to post first quarter organic growth down 13.6 per cent including a 24 per cent drop at Gucci, consistent with the fourth quarter, when Gucci sales were down 24 per cent.
As for the rest of the industry, it is a continuation of what we have seen in previous quarters, with Moncler proving “relatively resilient, with the core product resonating well in Asia-Pacific in a seasonally critical period”, according to Jefferies analysts, Cartier-owner Richemont “confirming strong share gains in Western markets” while Prada continued to shine.
“Prada Group looks set for industry-leading growth [11 per cent] in the first quarter,” wrote Jefferies analysts, with Miu Miu at over 50 per cent. The integration of Versace is bound to be discussed during the earnings call and in the foreseeable future. “Versace will need investments to reboot the brand, making it an initial drag to Prada’s short-term profitability,” wrote Jelena Sokolova, senior equity analyst at Morningstar. “It’s a good moment for the execution of the Versace turnaround because many fashion brands are in creative transition and there is market share up to grab,” says Ortelli.
What the rest of the year will bring is uncertain. “A few weeks ago, Q1 was the toughest basis of comparison for the year and would be slow before things would re-accelerate after Q1. Now that you have the situation with consumer psychology being under pressure, equity markets being down so much, it s not that obvious that the rest of the year will be that easy,” Rambourg concludes.
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