Four luxury stocks to watch amid hopes of a Chinese consumer rebound

The luxury sector is experiencing a nascent rebound, driven by improving Chinese consumer appetite and resilient U.S. spending, with J.P. Morgan highlighting Richemont, LVMH, Salvatore Ferragamo, and Ralph Lauren as key players. Richemont, a top pick, reported sales up 5% to €10.6 billion, exceeding expectations, primarily due to strong jewelry performance. LVMH saw a significant acceleration in Chinese luxury demand and posted 1% organic Q3 growth with €18.3 billion in revenue, while Salvatore Ferragamo achieved its first positive quarterly growth since 2022. Analysts note strong U.S. consumer spending and global wealth generation as supportive factors, suggesting continued growth potential for the sector despite ongoing complexities like tariffs, especially with an uptick in Asian demand.

Analysis

The luxury sector is experiencing a nascent rebound, driven by improving Chinese consumer appetite and resilient U.S. spending, as highlighted by J.P. Morgan analysts. Q3 trading updates were encouraging, with strong U.S. consumer spending identified as a significant positive surprise, supported by solid wealth generation from stock markets and precious metals. While "green shoots" are emerging in Chinese demand, it is noted as too early to declare a full turnaround.

Richemont, J.P. Morgan's top pick, reported H1 sales of €10.6 billion, a 5% year-over-year increase, exceeding analyst expectations, primarily due to strong performance from its jewelry brands like Cartier. LVMH also demonstrated a recovery, posting 1% organic year-on-year growth in Q3 with €18.3 billion in revenue, rebounding from two consecutive quarterly declines, and saw a significant acceleration in Chinese luxury demand from -16% to -3%.

Salvatore Ferragamo is emerging as a turnaround story, achieving its first positive quarterly growth since 2022, with shares advancing 14.3% year-to-date. Ralph Lauren was also singled out by J.P. Morgan for strong performance, with significant growth opportunities identified in women's wear, handbags, and outerwear, despite holding only a 2% market share.

Despite the positive momentum, the sector remains complex, with ongoing tariff discussions, such as the potential U.S.-Switzerland deal, influencing sales and profit margins. However, analysts anticipate continued growth for luxury given the increasing global wealthy population and the observed uptick in Asian demand.

Key Decisions for Investors

• Investors should closely monitor the progression of Chinese luxury demand for signs of a sustained recovery beyond initial "green shoots," as this remains a critical growth driver.
• Consider differentiated exposure to luxury brands based on specific performance metrics, such as Richemont's strong jewelry segment, LVMH's accelerating Chinese demand, Salvatore Ferragamo's turnaround, and Ralph Lauren's identified growth runways.
• Evaluate the potential impact of ongoing tariff discussions, particularly between the U.S. and Switzerland, on luxury companies' sales and profit margins.
• Capitalize on the sustained strength of the U.S. consumer, supported by solid wealth generation, by favoring luxury companies with robust market presence and performance in the region.