Europe’s luxury industry is expected to see a surge in sales in the second quarter of this year, thanks to an influx of high-spending tourists. Leading luxury groups in France, such as LVMH, Kering, and Hermes, are predicted to benefit from this trend, which will help counterbalance the negative impact of COVID-19 restrictions in China. Despite stock market volatility and rising prices, demand for designer labels remains strong as shoppers are eager to spend their savings accumulated during lockdowns.

One key factor contributing to the increase in sales is the euro’s decline against the dollar, which is enticing American tourists to spend more while visiting Europe. Luxury mergers-and-acquisitions advisory firm Ortelli & Co predicts that the significant influx of American consumers traveling to Europe will have a substantial impact on the sector’s sales.

Investors will closely monitor the demand for designer brands and the luxury goods companies’ plans for further price increases. These price increases are aimed at safeguarding profit margins. Luca Solca, an analyst at Bernstein, believes that high-end demand in the market is still strong and has yet to normalize. However, he expects this normalization to occur in the second half of the year.

Despite the optimistic sales outlook in Europe, concerns linger regarding the impact of China’s lockdowns on the luxury industry. Estimates from Barclays suggest that China’s luxury sector experienced a significant decline in sales, up to 40%, during the quarter. Moreover, weak second-quarter GDP data from China, combined with sales declines reported by Burberry and Richemont, have raised concerns about the industry’s prospects in the country.

The performance of the U.S. luxury market will also be closely observed. After becoming the largest luxury market last year, surpassing Europe, the United States continues to attract investments from European labels. Consensus estimates indicate that LVMH will see a 17% increase in sales, Kering 12%, and Hermes 16% in the second quarter.

To gain further insights into the performance of the luxury industry and its outlook for the rest of the year, investors will eagerly await the release of first-half results from LVMH on July 26, Kering on July 27, and Hermes on July 29.

Useful links:
Europe’s luxury sales set to bounce back from coronavirus crisis
Fashion retail gets a boost from high-spending tourists