Bank of America: "New products" will be a key variable for the recovery of luxury goods sales in 2026.

Bank of America recently released a research report stating that in the first quarter of 2025, luxury goods revenue declined by 1% compared to the previous year when calculated at a fixed exchange rate, 4 percentage points lower than the fourth quarter of 2024, and growth rates in all regions slowed down. The bank believes that the second quarter and first half of 2025 will show news on three aspects: "good," "bad," and "terrible." The good news is that despite increased macroeconomic volatility globally, local demand in Europe, Asia, and the Americas remains strong. The bad news is that the tourism industry in Japan and Europe is deteriorating and expected to have difficulty recovering fully. The terrible news is that the profit outlook for the first half of the year is uncertain, with soft revenue leading to profit decline pressure, while declining capacity utilization and changes in regional structure are putting pressure on gross profit margins. Additionally, with fixed cost structures and limited profit margins, the bank expects first-half earnings to be 6% lower than market expectations. Bank of America pointed out that although luxury goods company stocks have declined by 8% so far in 2025 and consensus earnings per share expectations have been lowered by 8%, the industry is still trading at a price-to-earnings ratio of 22 times, putting it in the middle range of historical valuation. Short-term upside risks mainly come from the macro level, while downside risks lie in the possibility of lowering earnings expectations for the second half of 2025 and 2026. The bank believes that the September/October fashion shows this year are more important than in previous years (although they usually do not serve as direct catalysts) as they will help determine if there are enough new products (especially those with more attractive prices) to drive sales recovery in 2026, and which brands will lead in this process. Bank of America stated that luxury goods demand in the second quarter of 2025 is weak, but may be better than expected. The bank pointed out that the average weighted data change in the second quarter shows that revenue trends have slowed down by 1 percentage point compared to the first quarter (a 2% decline year-over-year). Looking at various regions, in the Americas, data from Bank of America Corp's credit and debit cards show that luxury spending has improved by 3 percentage points so far in the second quarter, narrowing the decline to -4% (compared to -2% in May); jewelry spending has also increased by 4 percentage points, reaching +3%. In Europe, data from Planet shows that tourist spending in the EU region has declined by 8 percentage points from the first quarter to the second quarter, dropping to -13%, but local consumption remains stable. In Japan, tourist spending is expected to decrease by 30-50 percentage points in the second quarter, implying a negative impact of 16 percentage points for the region. In China/other Asian regions, jewelry sales in China and Hong Kong have slightly improved, while the Korean market is somewhat weak (down 6 percentage points to +1% so far in the second quarter). Bank of America also provided evaluations of various luxury goods companies. For LVMH (LVMUY.US), the bank believes that the second quarter could be a key turning point for the company, helping to assess whether the Fashion & Leather goods department (F&L) is out of touch with the industry (which could deteriorate by 1-2 percentage points or more) and bring pressure on the EBIT profit margin. However, some analysts' expectations for this sector are already very low (the bank expects -7%, with market expectations as low as -11%), indicating that the market already anticipates weakness in this sector. For Hermes (HESAF.IS), the bank expects revenue to increase by 9% year-over-year in the second quarter and for the full year, with an EBIT profit margin of 40.1% in the first half of the year. For Kering, Inc. Sponsored ADR Class A (PPRUY.US), the bank expects performance in the second quarter and first half of the year to be in line with the guidance released in April, with the next catalyst being the company's comments when releasing second-quarter financial results, which will help assess the risks to market expectations for the second half of 2025/2026. For Richemont Group (CFRUY.US), the jewelry business continues to be strong, and market consensus on gross profit margins may still be too high, with catalysts for performance adjustments likely to be delayed until October/November. For Moncler (MONRF.US), revenue in the second quarter is expected to be flat compared to the first quarter, with retail revenue for the Moncler brand growing by 4% when calculated at a fixed exchange rate (market expectation was +8%). For Prada (PRDSF.US), due to unfavorable factors in Japan, revenue for the Prada brand is expected to decline by 1% in the second quarter; Miu Miu brand continues to perform strongly, with an expected growth of +40%. For Zegna (ZGN.US), April performance was better than the first quarter, so revenue for the Zegna brand in the second quarter is expected to grow by +5% (compared to +4% in the first quarter). For Swatch (SWGAF.US), the first half of 2025 is expected to achieve a break-even.