Luxury goods stocks jumped on Thursday morning following Cartier-owner Richemont's (CFR.SW) surge in sales, prompting hopes of a turnaround for the sector.
Richemont's third quarter trading update, published on Thursday, got earnings season off to a strong start for the luxury sector. The company, which also owns jewellery brands Van Cleef & Arpels and Buccellati, said sales rose 10% to €6.2bn (£5.2bn), the highest ever quarterly figure.
While Richemont said it still facing "challenging demand" in China, with the country's economic struggles weighing on the sector, the company reported slower decline in Asia Pacific more broadly.
Richemont said it had seen double-digit sales growth Japan, as well as in the Americas, Europe, Middle East and Africa.
Richemont shares soared more than 16%, sending the share price to a record high of 161.80 Swiss francs (£145.80).
Mamta Valechha, consumer discretionary analyst at Quilter Cheviot, noted that Richemont's third-quarter 10% sales growth "significantly" beat consensus expectations of 1%.
"This has been driven by a marked improvement across all divisions," she said. "The largest and most profitable division, Jewellery Maisons, delivered organic growth of 14%, beating consensus by 10 percentage points, and this too against a very strong comparison."
Actor Zoe Saldana wears Cartier jewellery at the Golden Globe Awards on 5 January 2025. ·Matt Winkelmeyer via Getty Images
Richemont's update triggered a rally in other luxury stocks, with Paris-listed companies LVMH (MC.PA), Kering (KER.PA) and Hermès (RMS.PA) rising 9%, 8% and nearly 6% respectively. Iconic British brand Burberry (BRBY.L) gained 8%, while the Hong Kong-listed Italian company Prada (1913.HK) ended the session in Asia more than 4% in the green.
Russ Mould, investment director at AJ Bell (AJB.L), said that Richemont's update had "put a sparkle on the luxury goods market", as share price rises across the sector suggested that investors were taking this as a "signal that the luxury goods sector’s slump was over".
“Investors were previously caught off guard when they presumed the cost of living crisis would not impact wealthy people and therefore the luxury goods sector would continue to thrive, but this turned out to be incorrect," he said. "Luxury goods companies saw a drop in demand and share prices were shaken across the sector."
Mould said that the "bullish nature of the trading update has certainly got investors searching for opportunities across the sector."
LVMH, which is behind brands including Louis Vuitton and Dior, is due to report its full-year results on 28 January. ·Edward Berthelot via Getty Images
Luxury stocks back in fashion?
Companies in the luxury sector have struggled in recent years, with rising cost pressures on consumers forcing them to rein in spending and brands have been particularly impacted by the economic slowdown in China.
This has meant that stocks in the sector had fallen out of fashion with investors. However, Deutsche Bank (DBK.DE) suggested in a note in early December that the outlook for the sector could improve this year.
One of the companies that Deutsche Bank analysts highlighted as a preferred stock in the sector was Kering — the group behind fashion brands Gucci and Yves Saint Laurent — which is due to release its full-year results on 11 February.
"All of the survey and external data we see points to an ongoing high consumer regard for the Gucci brand," the analysts said.
"Looking into 2025 we see a picture where the relative sales performance differential between Kering and the wider luxury sector narrows," they added. "With the rising tide in 2H expected to lift all luxury boats our view is that the most outperformance will be delivered from the highest beta names where self help will magnify the outperformance."
Burberry, which is due to release its third quarter trading update on 24 January, was another company Deutsche Bank analysts highlighted as a stock to watch in the sector in 2025.
The British brand has been particularly impacted by the slowdown in demand for luxury goods, with its struggles seeing the stock booted off the FTSE 100 (^FTSE) in September's quarterly reshuffle, after 15 years on the blue-chip index.
However, Burberry unveiled a turnaround plan in November, with recently appointed CEO Joshua Shulman saying that said the company was "acting with urgency to course correct" following underperformance.
Investors cheered the news, though the stock is still down 14% over the past year.
Deutsche Bank's analysts said that they saw the "Burberry strategy as being more aligned with the luxury consumer over the next 12-24 months."
LVMH, which is behind brands including Louis Vuitton and Dior, is due to report its full-year results on 28 January.
The stock is trading just 3% in the green on a one-year basis, with shares slumping after the company's third quarter revenue update.
LVMH posted revenue of €19.08bn for the third quarter, with organic growth dipping 3% on the same period in 2023.
The company also flagged the continued "uncertain economic and geopolitical environment" in its outlook.
Despite this, Barclays (BARC.L) analysts said in a note on 9 January that they maintained an "overweight" rating on the stock.
"We expect no further deterioration in Q4 organic growth for LVMH FLG and still expect LVMH to benefit from a small rebound in 2025 after a tough year," they said.
Birkin handbag maker Hermès has the bucked the trend of recent downbeat results, driving a 36% gain in the shares over the past year.
In the third quarter, Hermès said sales continued to grow, rising 11% to €3.7bn and said that all regions were seeing solid growth by the end of September.
Barclays analysts said in a note on 13 January that they had an "overweight" rating on the stock, saying that it benefitted from an "outsized exposure to the high-end cohort".
"Hermes remained one of the more resilient brands despite softer demand in China," they said.
Italy's Prada, which is due to publish its full-year results on 4 March, is another company that has reported stronger sales growth, with shares are up 51% on a one-year basis.
Prada said revenues were up 18% in the nine months to the end of September, climbing to more than €3.8bn, reporting nearly double retail sales growth at Miu Miu.
Samir Mehta, senior fund manager at JO Hambro, said that Prada had seen a "reincarnation" over the past five years.
Companies in the luxury sector have struggled in recent years but could be looking at a turnaround in 2025. ·Jeremy Moeller via Getty Images
He said that the company "decidedly shifting away from wholesale distribution meant initial disruption in sales. Yet once accomplished, brought back complete control on inventory and pricing."
Mehta said Prada also revamped its online marketing and influencer engagement. "Millennials and Gen Z, once dismissed as fickle, became the new darlings of luxury retail," he said. "Prada courted them not with florals for spring, but with sustainability initiatives and inclusive marketing."
In addition, Mehta said the company "refocused on craftsmanship and heritage. In a world of fast fashion and disposable trends, Prada doubled down on quality."
Looking ahead, there has been some concerns that proposed trade tariffs from US president-elect Donald Trump, who returns to office next week, could put some pressure on luxury retailers.
Despite these concerns, Jerry Storch, CEO of Storch Advisors, told Yahoo Finance earlier this month that he predicted the tariffs would not have a severe impact on luxury retail.
He said that many goods from the luxury retail sector can be characterized as "Veblen goods," wherein demand increases as price increases.
"It might even be positive for some retailers in particular ... [these luxury providers] have been very successful in passing along price increases for quite some time," Storch added.
At the same time, he noted that uncertainty is high and warned investors not to "jump to any conclusions".
