Luxury’s hopes for a slight first-quarter rebound have been set back, as conflict in the Middle East delivers a blow to performance.
“Q1 didn’t really change the sector’s outlook, and, if anything, it slowed down or pushed back the recovery story we had in mind,” Barclays head of European luxury goods research Carole Madjo says. “The market has lowered its Q2 estimates to factor in the impact of the Middle East conflict and the disrupted tourism environment. The sector’s downgrade cycle is still ongoing on the top line, and potentially on margins as well.”
HSBC anticipated a 5.5% increase in global luxury sales in Q1 2026. However, the average organic sales growth of LVMH, Kering, Hermès, Moncler, and Prada materialized at 4.2%.
“For most companies, momentum in China is improving every quarter. The big issue continues to be the drop in Chinese tourism,” TD Cowen analyst Oliver Chen says. “The US continues to be a resilient and attractive market, with a K-shaped economy — where the top end grows, but the lower end is seeing more pressure particularly as consumers watch gas prices. The strongest momentum comes from jewelry.”
While soft luxury brands have shown relative weakness, the jewelry “supercycle” continues. Sales at LVMH’s watches and jewelry division, Kering’s jewelry arm, and Hermès jewelry were up 7%, 22%, and almost 10%, respectively. This bodes well for Cartier owner Richemont, which will publish its annual earnings on May 22.
At LVMH’s annual general meeting on April 23, chair and CEO Bernard Arnault warned investors that the Middle East crisis “could turn into a global catastrophe with extremely serious and very negative economic consequences”. He added: “In which case, who can say how 2026 will play out? Or it might be resolved one way or another more quickly, which is what we all hope for, even if it doesn’t seem easy; and in that case, business will gradually return to normal.”
Here are the key takeaways from luxury’s Q1 earnings.
The impact of the Middle East crisis
Despite variation between companies, the conflict in the Middle East has impacted sales growth by around 1 to 2 percentage points. Some are less exposed, such as Moncler, which generates less than 2% of its business in the Middle East, while others like LVMH, Kering, and Hermès are more reliant on the region; LVMH generates approximately 6% of its sales in the Middle East, Kering generates roughly 5% of its retail sales in the region, and Hermès 4.3% of sales. (According to Jefferies estimates, Hermès totals almost 8% with Middle Eastern spending abroad.)
