Key Takeaways From Luxury’s Q2 Earnings

Despite the drag from China, the luxury sector returned to stronger growth in the second quarter.

HSBC anticipated a 4.3% increase in global luxury sales in Q2 2026, compared with 4.9% in Q1. However, the average organic sales growth of the sector materialized at 7%.

Reactions across the stock market varied wildly. Hermès shares sank 11%, despite a 6.7% sales uplift in line with consensus expectations, as well as an ​operating profit margin of 41%. Meanwhile, Kering stock soared 17% after the group reported 2% growth, which included a 2% drop at its largest brand, Gucci.

“The wild swings reflect broader market nervousness,” says Charles-Louis Scotti, head of luxury goods equity research at Kepler Cheuvreux. “Moreover, after favoring defensive companies and the brands at the top of the luxury pyramid during the post-Covid normalization period, investors are now showing renewed interest in turnaround stories.”

While growth among soft luxury brands remained subdued, the jewelry “supercycle” continued unabated. Sales at Richemont’s jewelry maisons, including Cartier and Van Cleef & Arpels, rose 24%, smashing expectations of 13%. Sales at LVMH’s watches and jewelry division and Kering’s jewelry arm, the latter of which includes Boucheron and Pomellato, were up 11% and 18%, respectively. Sales at other Hermès sectors, including jewelry and home, were up 4%.

“Excluding the impact of the Middle East, the sector would have increased 8% in Q2, which is in line with the compound annual growth rate for the luxury sector between 2012 and 2019,” Scotti says. He notes, however, that the growth mix has shifted significantly post-pandemic, with performance now driven more by jewelry and less by ready-to-wear and handbags. “The overall luxury sector’s performance is particularly impressive given that spending by Chinese nationals is only marginally positive today, compared with its contribution of more than 50% of sector growth before the pandemic.”

Here are the key takeaways from luxury’s Q2 earnings.

“The sector’s growth is concentrated within a very narrow base,” says Morgan Stanley managing director Édouard Aubin. “Ultimately, it is being driven entirely by the Americans and the Koreans; Americans account for approximately 20% of total spending, while Koreans contribute 5-6%. Spending from all other nationalities was flat or declined. China is flat at best, and for a lot of investors, as long as they don’t feel that China is coming back in growth mode, they don’t want to be involved with the sector.”

LVMH CFO Cécile Cabanis confirmed that growth in the group’s fashion and leather goods division was driven by a relatively narrow customer base. “The bulk of the growth came from the Americans, who are up high-single digits. Koreans also contributed, but it’s a smaller base, so the impact is more marginal,” she explained during the company’s Q2 earnings call. “You had the negative impact of the Middle East, but it was no higher than in Q1, as the prolonged weakness was offset by sequential, gradual improvement. Then, Europeans, Japanese, and Chinese clienteles were flattish.”

At LVMH, Asia, excluding Japan, was the only region where growth deteriorated in the second quarter: up 4% and slowing from 6% in Q1, despite an easy comparison basis. In Q2 2025, LVMH sales in Asia, excluding Japan, were down 6%. At Kering, sales growth in Asia-Pacific improved but remained negative (-1%). At Hermès, Asia-Pacific sales, excluding Japan, were up 2.5% in Q2, after a 2.2% sales uplift in Q1.

“We’re seeing stability in China today, but the economy has not yet regained the momentum it had in the past,” Hermès executive chair Axel Dumas said during the company’s Q2 earnings call.

The bullish case for China, Aubin argues, is that even if the property market remains sluggish, a tech-led rally in the stock market could shift the market’s dynamics. “For now, we see none of that to be clear,” he says.

South Korea offers a glimpse of what that could look like. As the country’s tech sector fuels wealth creation, local consumers are splurging on luxury goods like jewelry and watches. Samsung’s recent payout of hefty employee bonuses underscored the industry’s strength, buoyed by booming demand for AI chips.

“South Korea, in particular, delivered an excellent performance,” Kering CFO Armelle Poulou said, noting that Gucci also recorded positive results in the country. “Balenciaga continued to perform strongly in markets such as South Korea, highlighting the brand’s relevance in one of the world’s most dynamic luxury markets today,” Kering CEO Luca de Meo added.

However, there has been some recent volatility in the Korean stock market. South Korea’s benchmark KOSPI Index is up 53% year to date, after surging as much as 120% at its peak earlier in 2026, Scotti notes.

Anne-Laure Bismuth, HSBC head of luxury and sporting goods, also highlights the recent volatility of the KOSPI, as well as the correlation between stock market performance and luxury spending. “We will need to see whether this positive trend persists. The base of comparison also becomes more challenging from October,” she says.

Top-tier luxury brands continued to outperform: Loro Piana “turned in another excellent performance”, according to parent company LVMH; Zegna was 16.5% in Q2; and Brunello Cucinelli was up 13.3% in the first half of the year.

Morgan Stanley’s Aubin highlights the still-significant performance gap between brands catering to ultra-high-net-worth individuals and broader luxury players. “The sector continues to struggle to attract consumers from the middle class, a key concern for investors,” Aubin says.

Cabanis, meanwhile, dismissed the idea that LVMH, alongside the rest of the industry, might be missing middle-class consumer demand. “I think — and it’s good news for our industry — that wherever there is wealth creation, which we have seen in the US and in South Korea, there is a strong appetite for luxury and for our goods across all clienteles,” she told investors.

Scotti says: “I think that half of the factors explaining the sector’s recovery are really the result of initiatives taken by brands: creative renewal, innovation in leather goods, price repositioning, a refresh of iconic products, and the reinvention of client activations. I think the other half comes from the huge wealth creation effect linked to AI. The most dynamic markets in Q2 are the ones benefiting the most from AI: South Korea, Taiwan — where Gucci turned positive — and the US.”

Financial discipline was a recurring theme throughout the quarter’s earnings calls.

“We have seen a better-than-expected EBIT performance across the board in the first half of the year, apart from a few exceptions such as Swatch, as companies optimized their cost structures, which is usually the case when growth is softer,” Bismuth says.

LVMH’s profit from recurring operations for the first half of 2026 came to €8.7 billion, yielding an operating margin of 22.5% and beating expectations of 21.8%. Kering’s recurring operating margin reached 12.8%, an improvement compared with the first half of 2025 when it reached 12.4%.

“There is a real cost discipline effort that is working well, with chief financial officers making their voices heard more than usual,” says Carole Madjo, luxury goods analyst at Barclays. “Companies are cutting back as much as possible on all general overhead expenses. But marketing remains somewhat the key battleground.”

LVMH’s marketing and selling expenses were down 2% year-on-year in the first half of 2026. CFO Cabanis said: “We make sure that wherever we need it, we invest in the brands. When you go for creative renewal, for example, with Jonathan Anderson at Dior, you will invest in your brand, and that’s very clear”

Companies notably reduced costs through operating expenses. At Kering, for example, operating expenses declined by 5% in H1 2026, compared with the year prior.

As part of its turnaround strategy, Kering closed 84 stores in the first half of the year, following  75 net closures in 2025. “The fact that we returned to growth while materially reshaping our network demonstrates the improving productivity of our retail operations,” de Meo noted.

Prada is also making closures. “Most probably, we will cut some stores in China in the next couple of years,” Prada Group CEO Andrea Guerra told analysts. “We’re probably going to cut two or three stores a year for the next two to three years.”

The quarter’s earnings offered an early read on the impact of the luxury sector’s creative reset, which includes Jonathan Anderson, Demna and Pierpaolo Piccioli now helming Dior, Gucci and Balenciaga, respectively.

At Dior, sales were slightly above the LVMH fashion and leather goods division average of +1%, driven by double-digit growth from the Americans and the Japanese, according to Cabanis. “We are aiming to build lasting momentum,” she said.