After several years marked by weaker Chinese demand, the normalisation of consumption following the pandemic, geopolitical tensions and uncertainty surrounding tariffs, the luxury sector continues to operate in a challenging environment. However, the latest earnings season has provided several encouraging signals, pointing to a gradual improvement in the sector’s momentum.
Second-quarter results published by the leading luxury companies were broadly in line with, or slightly ahead of, market expectations. Several groups reported an acceleration in organic growth compared with the first quarter.
While this improvement partly reflects more favourable comparison bases, it also points to a gradual recovery in demand. Management commentary has also become more constructive than in recent quarters, with greater confidence in the outlook ahead.
This earnings season nevertheless confirms that not all segments of the luxury sector are progressing at the same pace.
Jewellery remains the sector’s main growth driver. Demand from the most affluent consumers remains resilient and continues to support particularly positive momentum.
By contrast, fashion and leather goods are operating in a more mixed environment. The creative repositioning undertaken by several major luxury houses is beginning to deliver encouraging results, but the recovery remains gradual and uneven across brands.
The geographical picture also reveals some positive developments.
The United States remains the sector’s main growth engine. In Europe, the improvement is being supported by more favourable tourist flows, while Japan is rebounding following a period of more challenging comparisons.
Early signs of stabilisation are also emerging in Asia. Although China has yet to experience a genuine recovery, trends in shopping centres and luxury consumption suggest a gradual improvement in demand – a development that investors are monitoring particularly closely.
Beyond sales growth, the ability of luxury groups to preserve profitability has been one of the main positive surprises of this earnings season.
Despite a less favourable currency environment, many companies have managed to protect their margins through disciplined cost and inventory management. Cash flows have also remained robust, highlighting the financial strength of the sector’s leading players.
The reaction of financial markets confirms an important shift: the luxury sector is no longer viewed as a homogeneous group.
Companies demonstrating an improvement in demand or executing their strategies effectively have been rewarded by investors. By contrast, groups with greater exposure to the most consumption-sensitive segments continue to attract greater caution.
This differentiation reflects the growing importance placed on brand quality, pricing power and the ability to execute strategy effectively.
While this earnings season has provided several reassuring signals, investors remain focused on developments in global demand, particularly in China.
Upcoming results will help determine whether the trends observed this summer truly mark the beginning of a sustainable recovery. The latest figures nevertheless suggest that the low point of the cycle is probably behind us.
Despite these encouraging signs, many investors remain underexposed to the sector and are still waiting for more tangible evidence of a recovery in demand, particularly in China. This caution continues to weigh on valuations. If the signs of improvement are confirmed, today’s relatively modest expectations could pave the way for further positive revisions.