Investing.com -- Luxury stocks are facing renewed pressure as fallout from aggressive new U.S. tariffs ripples through global markets.
Analysts at Bernstein in a note dated Monday have downgraded their growth forecast for the global luxury goods sector in fiscal 2025 from +5% to -2%, warning that the industry is entering a deeper correction as trade tensions feed into wider economic instability.
The newly imposed average U.S. import tariffs of 23% are far steeper than most investors had expected, marking a shift from a U.S.-China decoupling to a broader global trade disengagement.
While the direct impact on luxury goods may be contained — with companies often able to pass on higher costs — Bernstein points to the more damaging knock-on effects: a drop in consumer confidence, a weakening equity market, and growing fears of recession.
Even with the market pullback, valuations remain elevated in many parts of the sector. Bernstein notes that most luxury companies are still trading above their long-term valuation troughs, last seen during the global financial crisis or in pandemic-era lows.
Among the largest players, LVMH is already trading at its five-year low in EV/Sales terms. The company faces multiple headwinds, including underperformance at Dior, continued challenges in its wines and spirits division, and a potential divestiture of DFS.
With the second-highest exposure to U.S. consumers after Estée Lauder, LVMH is particularly exposed to ongoing weakness in American discretionary spending.
In contrast, Hermès and Richemont (SIX:CFR) continue to command premium valuations, still trading well above both five-year and historical troughs.
Bernstein attributes this to strong pricing discipline during the pandemic and sustained margin expansion. Hermès is seen as the most defensive stock in the group, though even it could come under pressure if macroeconomic conditions deteriorate further.
Ferrari, also under Bernstein’s coverage, has confirmed that it will pass tariff costs directly to its customers.
The brand’s ultra-wealthy client base and narrow consumer segment offer a degree of insulation, and the stock appears to be stabilizing after a recent stake sale by Exor (AS:EXOR).
Among the trend-driven names, Prada (OTC:PRDSY) has seen multiple compression ahead of its anticipated acquisition of Versace.
Meanwhile, Swatch has been hit hard by especially high U.S. tariffs on Swiss goods — at 31%, significantly above the 20% rate imposed on EU products — and the broader decline in watch sector sentiment.
Turnaround efforts at Kering (EPA:PRTP) and Burberry (LON:BRBY) are also faltering. Both companies have set new five-year valuation lows, and Bernstein casts doubt on their recovery timelines. Kering’s guidance for a second-half rebound in FY25 now appears increasingly unlikely.
Bernstein warns that the luxury sector is not yet near a valuation floor. With central banks constrained by inflation, companies delaying investments, and consumers reining in spending, the firm expects further downside ahead.
“Even with higher than expected tariffs, we do not believe the first level impact of tariffs are a big deal (see Global Luxury Goods: First level impact of US tariffs — negligible). What concerns us are the second- and third-order effects: the uncertainty, recent stock market crash, USD devaluation and threat of a global recession,” said analysts at Bernstein.