Luxury sector profit expectations are "overly optimistic"! Multiple major banks turn bearish within a month, luxury stocks head for worst year since 2008

According to Financial Intelligence APP, analysts at Royal Bank of Canada (RBC) stated that given the weakening demand environment and sluggish purchasing trends, the market's profit expectations for European luxury goods manufacturers are overly optimistic.

The team led by Pilar Dadkhahnia indicated in a report that the weakening economic backdrop has resulted in mixed data from Asia, and U.S. consumption may also slow down. They point out that in a tougher environment, creative marketing by luxury brands is unlikely to deliver the expected boost to sales, describing their stance as "more cautious."

RBC downgraded their stock ratings on LVMH and Burberry Group from "Outperform" to "Market Perform". The analysts also lowered their 2027 earnings per share forecasts for Kering, Moncler SpA, Hermès International, and Swatch Group AG.

Dadkhahnia and her colleagues said that expectations for next year's profits "still appear overly optimistic to us, as they assume most stocks will achieve accelerating revenue growth and margin expansion. However, this does not reflect the current environment of the luxury sector and would require a trend reversal."

Luxury stocks may record their worst annual performance since 2008

RBC’s view has added another layer of gloom for already-disappointed investors in luxury stocks. The Iran war has pushed up oil prices, exacerbating inflation concerns and triggering a hawkish response from central banks, potentially suppressing consumer spending. Persistently weak Asian demand has further dampened hopes for a recovery in industry profits.

Goldman Sachs’ basket of luxury stocks is already down 15% in 2026, and as of Monday’s close, is on track for the worst annual performance since 2008. Heavyweights LVMH and Hermès are among the biggest laggards, both down about 37% since the start of the year. RBC analysts say their preferred stocks in the luxury sector are Ferrari and Richemont.

Pessimism Spreads

Bearish sentiment is spreading across Wall Street for the luxury sector. Over the past month, multiple investment banks including RBC, Morgan Stanley, HSBC, and Bernstein have repeatedly downgraded the ratings, target prices, or profit forecasts for European luxury stocks.

Last week, Morgan Stanley cut LVMH’s target price from 520 euros to 450 euros, maintaining an "Equal-weight" rating; JPMorgan lowered the target price from 580 euros to 525 euros, maintaining a "Neutral" stance and expects fluctuations and weakness in Chinese retail to persist until 2027. HSBC analyst Anne-Laure Bismuth’s team also downgraded LVMH and Burberry to "Hold", bluntly stating that investors should not buy simply because of cheap valuations unless the "second derivative" of sales growth improves, and they see no more positive momentum in the second half of the year. Jefferies also cut LVMH’s target price from 510 euros to 440 euros.

What triggered this collective shift was yet another cooling of Asian demand. Bernstein analyst Luca Solca’s team warned in early September that sample data from mainland luxury malls showed a 12% year-on-year decline in July sales – the "fourth false dawn" for post-pandemic Asian luxury consumption recovery. Previous rebounds at the end of 2023, end of 2024, and end of 2025 all failed. The team lowered their forecast for the industry’s organic growth in Q3 by 110 basis points to 4.9%.

Stricter tax regulation on offshore wealth is also considered to be having a "chilling effect" on high-net-worth consumption.

What worries Wall Street more than demand volatility are structural issues. Morgan Stanley pointed out that the "historical pillars" supporting luxury premiums—strong pricing power, structurally driven growth by China, margin expansion, and low earnings volatility—are being challenged or normalized, causing long-term funds to consistently avoid the sector. Even with valuations having declined substantially, there is no expectation for a valuation rebound in the next 12 months.

However, there are also structural preferences within the consensus, with hard luxury being unanimously favored: both RBC and Bernstein rank Richemont as their top pick, with Bernstein calling it the "best play" in the sector; Morgan Stanley is most optimistic on Richemont, believing jewelry brands to be more resilient in China.

On September 2, UBS included Richemont among its top five picks for European non-essential consumer goods, noting its valuation is near a 20-year low relative to peers; Barclays is overweight Richemont, Moncler, Burberry, and Prada. Jefferies’ latest channel checks also show that while soft luxury is weak, hard luxury in China remains resilient.

The main dispute lies in whether valuations are cheap enough, but until there is an inflection point in demand trends, "more cautious" will remain Wall Street’s main tone.