The luxury sector is currently experiencing a period of sluggishness, and investors are advised to exercise patience as a substantial recovery is not anticipated in the immediate future. Analysts suggest that the second quarter of the year is unlikely to bring a significant surge in growth. While there might be a minor upturn or downturn compared to the previous quarter, a dramatic shift is not expected. Carole Madjo, a luxury goods analyst at Barclays, foresees a slightly stronger growth in Q2 than in Q1, primarily due to more favorable year-over-year comparisons. She notes that LVMH, a key indicator for the sector, reported a 9% decrease in its crucial fashion and leather goods division in Q2 2025, which naturally makes achieving growth in Q2 2026 somewhat easier. Across major players, an average growth of approximately 4.7% is projected, an improvement from 3.5% in Q1.
Conversely, Anne-Laure Bismuth, HSBC's head of luxury and sporting goods, anticipates a slight deceleration, forecasting 4.3% organic growth in Q2 compared to 4.9% in Q1. This Q2 average accounts for a weaker performance from the Moncler brand due to seasonal factors. Despite Jamie Dornan's involvement in the 'Have A Puffy Summer' campaign boosting Moncler's summer appeal, winter remains its primary business period. While Moncler's retail sales saw a 14% organic growth in Q1, a slowdown to 4.2% is expected in Q2, according to HSBC estimates. Both Barclays and HSBC's Q2 forecasts for the luxury sector are largely consistent, with growth primarily fueled by the US and South Korea, while the Middle East and China continue to pose challenges.
The Middle East and China continue to present obstacles for growth. The situation in China remains largely unchanged, although first-quarter results indicated a stabilization phase. Moncler stood out in Q1 with a remarkable 22% year-on-year revenue increase in Asia, but Q2 is not expected to show significant improvement. Carole Madjo indicates that China's market will see minimal short-term changes, but she anticipates a slight increase in spending by Chinese consumers abroad, particularly in South Korea. The ongoing conflict in the Middle East, a major topic in Q1 earnings discussions, is expected to have a more pronounced impact in Q2, affecting the entire three-month period. This conflict could reduce sales growth by approximately 1 percentage point in Q2. There is some optimism that Middle Eastern tourists in Europe during the summer might boost regional spending, contributing to a modest increase in European tourism. However, a significant heatwave across Europe in June could negatively affect footfall, a concern that management teams are expected to address in their Q2 earnings calls.
The US remains the primary driver of growth in the luxury sector, with Barclays' data showing an acceleration in Q2 credit card spending, moving from single-digit to double-digit growth. This indicates a genuine wealth effect propelling the sector forward. South Korea is also a standout performer, fueled by substantial bonuses in the tech sector, particularly from companies like Samsung, due to booming AI-driven demand. This tech boom is creating a strong wealth effect, evidenced by a 24.5% year-on-year surge in department store sales in May 2026, predominantly led by international luxury brands. Increased tourist numbers and heightened consumer confidence have further boosted spending, marking the eleventh consecutive month of growth for department stores. South Korea contributes significantly to luxury sales, accounting for 6% to 10% of the sector's total, with brands like Burberry, Moncler, Bottega Veneta, and Prada having strong market exposure. This robust performance in South Korea could potentially offset the weaker demand seen in the Middle East, offering a counterbalance to regional challenges.
The second-quarter earnings calls will also shed light on the impact of creative resets at various luxury brands, as new designers' initial collections have now been fully implemented in stores. Dior, under creative director Jonathan Anderson, is expected to return to growth in Q2, with sales projected to rise by 4%, a significant improvement from the Q1 decline of approximately 2%. LVMH's CFO Cécile Cabanis noted Dior's improvement in Q1, with further momentum anticipated in the latter half of the year. At Gucci, Demna's first collection, 'La Famiglia,' was available in stores in Q2, while 'Primavera,' launched in February, had limited availability. Analysts expect sequential improvement for Gucci, though growth is likely to remain negative, with Barclays forecasting a 5% decline in Q2 compared to an 8% decline in Q1. Chanel, with Matthieu Blazy's debut collection, has seen a shopping frenzy since March, with the Métiers d’Art collection further sustaining its upward trajectory. This 'Chanel mania' raises questions about market share, with some analysts suggesting it's a zero-sum game in certain markets like China, where one brand's growth may come at another's expense. Meanwhile, jewelry remains a resilient segment within the luxury market. Richemont, the owner of Cartier, is expected to maintain its strong performance in fiscal Q1 2027, with its jewelry maisons projected to achieve another quarter of 16% growth. Kering's jewelry division, including Boucheron, Pomellato, Dodo, and Qeelin, is also expected to see significant growth, with Barclays estimating an 18% increase. LVMH's watches and jewelry division, encompassing Tiffany and Bvlgari, is forecast to achieve 8% revenue growth, accelerating from 7% in Q1. This consistent strength in the jewelry segment highlights its role as a stable and growing component of the luxury industry.
The luxury industry stands at a pivotal moment, navigating a landscape of shifting consumer behaviors and regional economic dynamics. Despite ongoing challenges, particularly in certain markets, the sector demonstrates resilience and adaptability. Strategic creative directions, coupled with strong performances in key regions like the US and South Korea, point towards a path of eventual recovery and sustained growth. The continued success of the jewelry segment underscores the enduring appeal of timeless craftsmanship and intrinsic value. As brands innovate and adapt, the industry continues to offer opportunities for those who embrace change and uphold excellence, inspiring confidence in its long-term vitality.