Is This Luxury’s New Normal?

PARIS — The French capital’s sidewalk cafés and metro cars are presently groaning under the weight of a full-throated rebound in international tourism. American, British, Italian and Spanish speaking visitors are back in force, even as the return of high-spending travellers from China, Japan and Korea remains relatively circumscribed in the first summer since those countries scrapped their Covid-era travel restrictions.

The busy queues outside boutiques from Louis Vuitton to Officine Buly to Vivienne Westwood contrast sharply with a few weeks ago, when yet another round of protests and riots in France (this time over police violence) had sent many high-end shoppers fleeing: For a few days in early July, you could walk right into Hermès’ normally packed, reservation-only flagship on Rue du Faubourg Saint-Honoré.

In financial markets, sentiment surrounding European luxury brands continues to yo-yo as well. Omega-owner Swatch Group and Brunello Cuccinelli both beat estimates, while Burberry reported sales in line with forecasts. Cartier-owner Richemont matched average estimates, as well, last week. Still, falling sales in the US and relatively cautious commentary on China’s rebound sparked a steep sell-off, with shares in the third-largest luxury group falling as much as 10 percent Monday.

This week, luxury’s remaining top players are set to update the market in quick succession. Analyst estimates have only slightly declined in recent months, but Richemont’s results seem to have bolstered the credibility of their forecast for more moderate growth in the second half of this year after more than 2 years of rapid expansion. As such, commentary on current trading and the outlook for coming months could be just as important as first-half numbers.

Tuesday, sector leader LVMH will be seen as providing the most definitive take on whether big brands can thread the needle as they try to make sure rebounding Chinese sales balance out headwinds in the US and Europe.

Citi expects full-year organic growth of 15 percent in LVMH’s all-important fashion and leather division and 13 percent group-wide, a sharp drop compared to last year’s post-Covid boom. A tougher comparison base in China (where Covid restrictions were temporarily relaxed last summer compared to 2Q) and in Europe (where tourism rebounded in the second half of last year), combined with stubborn inflation in the US could make it hard to keep posting big beats.

“The sector has been used to deliver positive surprises for a number of years,” analyst Thomas Chauvet said. “Now we are seeing a bit of concern about the coming normalisation in growth.”

Other reports will be more brand-specific: At Kering, investors will be looking for reassurance about the implications of a leadership transition at flagship Gucci. In addition to naming new designer Sabato de Sarno earlier this year, the company announced Tuesday that CEO Marco Bizzarri would leave the brand.

Gucci’s pre-shakeup plan — to better balance fuelling fashion excitement with celebrating heritage and building long-term brand prestige — is unlikely to change. But the market is eager for clues regarding how that strategy will be implemented and how long it will take to see results. Investors will also try to get a sense of how De Sarno’s revamp of the brand is taking shape ahead of his September runway debut, and whether a new CEO is already lurking in the wings.

Prada’s results will test whether an independent mega-brand can keep up its post-Covid surge in a rockier fashion market, without the support of a big group. Hermès will show the impact of price hikes and volume increases for its key leather goods division, while revealing whether faster growth since the pandemic for other categories like fashion accessories, homewares and jewellery can continue its roll.