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.)
There is the direct impact on the region, which is lowered spending in the Middle East itself. “When the conflict started, there was a shortfall and a deterioration of demand [in the Middle East] between 30% and 70%, depending on the malls and the businesses,” LVMH CFO Cécile Cabanis said during the group’s Q1 earnings call. Hermès has six stores in the region; its Dubai, Bahrain, and Kuwait stores were closed at the beginning of March, or operating with adjusted hours. Hermès sales in the Middle East were down 6% in Q1, while Prada Group retail sales fell 22%.
Then, there is the indirect impact on tourism flows into Europe, which witnessed a significant drop in visitors from both the Middle East and Asia in Q1. Some Asian travelers pass through the region en route to Europe, while higher jet fuel costs in relation to disrupted trade routes are pushing up long-haul airfares.
But there is still hope that clients from the Middle East will shift their spending to other locales like Europe. “Those who are flexible enough and have residences in London or elsewhere can, so to speak, relocate temporarily for the summer and buy luxury products,” Madjo explains. “I think that the Middle Eastern consumers will probably resume their luxury consumption fairly quickly, but for now, it remains to be seen how things will play out and the market is very disrupted.”
LVMH’s Cabanis confirmed that the shift is yet to transpire. “ What we have not seen yet is repatriation,” she said. “But what we know is that wealth has not evaporated, so there will be a time where we’ll see that coming probably from elsewhere and mitigate the impact should the conflict continue.”
According to TD Cowen’s Chen, luxury companies need to watch the evolution of global travel flows closely and be agile in terms of product shipping, clienteling, and customer relationship management to offset some of the impacts.
Hermès shares take a tumble
Hermès’s Q1 performance disappointed, sending the stock down 8% on April 15, after reporting sales up 5.6% and missing expectations of 7% growth.
While the luxury house continues to outperform the industry, it is doing so at a slower pace than in previous quarters. Hermès estimates the Middle East conflict impacted sales growth by 1.5 percentage point in Q1.
But analysts credit the miss to a slowdown beyond the region, particularly in China. “More than the Middle East, it was the slowdown in Asia-Pacific growth that disappointed,” says Madjo. “Growth in the region rose just 2.2% in Q1, down from 8% in Q4. Hermès is facing a tough comparison base in [Asia-Pacific], noting that while aspirational consumers remain under pressure, high-net-worth individuals are holding up. But the result still fell short of expectations — after Q4, there were clear hopes of a recovery in China.”
In the short term, analysts are revising their full-year forecasts downward for Hermès, having previously expected the house to grow between 9% and 10% in 2026. “There is also a longer-term question: is Hermès’s growth equation, which has always been over 10%, now also being called into question?” Madjo says.
The Birkin bag maker aims to increase the volume of its leather goods by about 7% a year, while preserving its craftsmanship and regularly adjusting prices to reflect inflation (by around 3% to 4% annually). These levers have historically translated into double-digit growth for its most important business segment. Other categories such as ready-to-wear and accessories have also historically grown in the double digits, but are beginning to slow. (Ready-to-wear and accessories sales were flat in Q1, down from 7.1% growth in Q4.)
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Hermès may also be more exposed to tourist flows than markets had previously assumed. The company reported that France, where sales fell 2.8%, was impacted by a slowdown in tourism in Q1, particularly in March, which the company linked to the Middle East. More than half of its sales in France are generated by international visitors, the company said. Hermès EVP of finance Eric du Halgouët attributed the strong deceleration in ready-to-wear and shoes to the war, particularly among its sneakers and Oran sandals, which are very successful in the Middle East.
Bernstein luxury goods analyst Luca Solca noted that Q1 reinforced “our sense that Hermès is experiencing fading brand momentum”, as creative renewal ramps up across competitor houses. “We continue to believe in the fundamental building blocks of the Hermès brand. Yet, we believe that Hermès has the potential to do much more [...] like move further up in price and excite the rich consumers more.”
During the annual earnings presentation in February, Hermès executive chair Axel Dumas said plans to launch Hermès couture “are progressing”. “We’ve hired ateliers. We’ll be ready when we’re ready. What I have seen is amazing — I’m excited,” he said.
Surprise wins in China
Most companies are witnessing an improvement in China.
LVMH sales in Asia, excluding Japan, grew 7% in the first quarter — the group’s best performance in the region since 2023. Local China spending also increased, despite Chinese tourism remaining negative. Prada Group sales were up 5% in Asia-Pacific, while Kering sales were down 4%, following a 6% drop in the final quarter of 2025 — but “the all-important Chinese consumer likely remains down mid-teens for Gucci”, Solca wrote.
Gucci has a brand desirability and distribution issue in China. “When I go into some Gucci shops in China, it looks like I’m in my grandmother’s house. You don’t feel the modernity,” Kering CEO Luca de Meo told reporters at the group’s Capital Markets Day. The brand is rationalizing its store network in the country. “We have to resize the network, that’s for sure. Retail in China is becoming more and more experiential, so we’ll have to adapt. It’s not a matter of adding square meters that will make you successful.”
“China wasn’t a big surprise overall: the market is in a stabilization phase,” says Barclays’s Madjo “The only surprise came from Moncler.” The brand’s revenues in Asia were up 22% year-on-year to €433 million in Q1, smashing consensus expectations of 11% growth.
The first and fourth quarters are key for Moncler, because winter is still the backbone of the business — and the focus is paying off in China. “Considering everything we did in Q1, I think that this may have had an impact in China even more than in other regions,” said Luciano Santel, executive director of Moncler and group chief corporate and supply officer. In other words, there was a halo effect from the Winter Olympics — Moncler co-created the official uniforms for Team Brazil with Brazilian designer Oskar Metsavahtand — and from Moncler Grenoble’s blockbuster show in Aspen.
HSBC head of luxury and sporting goods Anne-Laure Bismuth notes: “Moncler Grenoble is a brand that is at the crossroads of luxury and technical products, and it is gaining market share in China’s growing outdoor market. There is a lot of interest from the Chinese in winter sports, and Moncler has gained a lot of traction on that front.”
Despite its stellar performance in China, executives remain cautious. “I don’t think all the [macroeconomic] problems in China are over,” said Santel, stressing the persisting real estate challenges. “But we see more of a vibe than in the past. China and the Chinese cluster are performing very well for us.”
Creative renewal sets in
In Q1, designs from a range of new creative directors hit stores.
The first collection by Dior’s creative director Jonathan Anderson landed in boutiques on January 2. “It’s off to a flying start, to the point that we’re struggling to deliver the products because demand is so strong,” Arnault told shareholders. “We’ll see how it develops.”
Delphine Arnault, chair and CEO of Christian Dior Couture, added: “We are in the midst of a cultural revolution taking place with the arrival of Jonathan Anderson, who is a highly talented designer, a genius [...] Many products are sold out. We’re working on it — focusing on operational excellence, as well as excellence in production, supply, and distribution.”
It’s a high-stakes reboot for Dior, as LVMH’s second largest fashion house after Louis Vuitton. While the group doesn’t break out revenues for individual houses, HSBC estimates that Dior witnessed a high-single-digit decline in 2025. In Q1, Dior “improved quite a lot versus previous quarters”, group CFO Cabanis said during the company’s earnings conference on April 13.
Meanwhile, at Kering’s largest house Gucci, Demna’s designs arrived gradually throughout the quarter, starting with La Famiglia. Group CFO Armelle Poulou noted a positive reception to the collection, which represented over 7% to 8% of the SKUs and sales in Q1, along with Primavera, which is available in limited quantities following the see-now, buy-now model. “[The good traction] will be confirmed with a full Primavera collection in the summer,” she told investors.
Gucci, under its new artistic director, has resonated with American audiences. Retail sales in North America were up 8% in the quarter, but this wasn’t enough to offset the decline in Asia and Europe.
Total sales at the Italian house were down 8% to €1.35 billion in Q1. HSBC’s Bismuth says: “Given that the performance of Gucci was still weak in Q1 and below market expectations, there are now some question marks as to whether Gucci can grow organically this year. I don’t think it’ll be possible anymore, especially in a challenging macro environment.” HSBC estimates Gucci sales will be down 4% on an organic constant basis for the full year.
Chanel is set to publish its 2025 earnings in May. In December, Bruno Pavlovsky, president of Chanel fashion and Chanel SAS, told Vogue Business that 2025 will be “an interesting transitional year of growth for the house”, after sales declined 4.3% in 2024. This month, management will likely comment on the positive response to Matthieu Blazy’s first collection in stores, already referred to as “Matthieu-mania”. The lines forming outside Chanel boutiques across key markets, including France and the US, along with the brand’s momentum — Chanel ranked first in the Lyst Index of hottest fashion brands in Q1 2026 — suggest strong prospects for solid growth.
