Luxury Sector Faces a Challenging Q1: Bank of America’s Outlook

Introduction

The luxury sector is bracing for a difficult earnings season, with Bank of America (BofA) forecasting a 1% revenue decline in the first quarter of 2025. This represents a three-percentage-point slowdown from the previous quarter and falls 3% below consensus estimates.

Despite the tough market conditions, BofA suggests the sector may be nearing valuation support levels, with forward P/E ratios at 21x—near the lower end of the historical 20-25x range. However, the key catalysts for recovery remain uncertain, particularly with China's economic outlook playing a major role in future growth.

Key Challenges for the Luxury Sector

1. Slower Organic Growth & Weak Fundamentals

• BofA expects earnings estimates to be revised downward, reflecting sluggish consumer demand and weaker pricing power.

• March showed no signs of improvement, casting doubt on a Q2 and H2 rebound.

2. Foreign Exchange Headwinds

• Unfavorable currency movements have negatively impacted European luxury firms that rely on international sales.

3. Volatility in China's Demand

• Chinese luxury demand remains a wild card—any positive macroeconomic news could drive a sector-wide rally, but uncertainty persists.

Company-Specific Outlook

Expected Growth Leaders

📈 Richemont (SIX:CFR) - Jewelry division may slow, but the company is expected to outperform peers.
📈 Hermès (EPA:RMS) - Expected to return to double-digit growth in Q2.
📈 Prada (OTC:PRDSY) - Likely to lead sector growth again.

Potential Underperformers

📉 Kering (EPA:PRTP) - Expected to post the weakest Q1 results.
📉 LVMH (EPA:MC) - Fashion & Leather division projected to decline 2.5%.
📉 Burberry (LON:BRBY) & Hugo Boss (ETR:BOSSn) - BofA remains cautious on both brands.

Companies With Sequential Growth Potential

• Kering, Moncler, Hugo Boss, and Burberry could see a sharp rebound later in 2025 if macro conditions improve.

Investment Takeaways & Valuation Considerations

• Current valuations (P/E 21x) suggest downside support, but growth concerns keep volatility elevated.

• Revenue growth must return to the historical 6-9% range for sustainable upside.

• China remains a key demand driver—watch for policy changes or economic stimulus that could boost spending.

For further insights, explore:

• Sector P/E Ratio API - Analyze historical valuation trends for luxury firms.

• Earnings Calendar API - Track upcoming earnings reports for key players.

Conclusion

The luxury sector faces short-term headwinds, but long-term valuation support could provide stability. Investors should closely monitor earnings revisions, China's economic signals, and currency fluctuations before making investment decisions.