RBC Capital Markets downgraded coverage across the European luxury sector Tuesday morning, citing a €47 billion aggregate overstatement in consensus earnings models for the next eighteen months. The bank's luxury analyst team now expects LVMH, Kering, and Hermès to collectively miss Street estimates by 12-17% through mid-2026, driven by weakening repeat-purchase rates in Greater China and slower conversion metrics across North American flagship stores. LVMH shares traded down 3.8% in Paris by midday; Kering fell 5.1%.

The move follows three consecutive quarters of softer-than-modeled results from the sector's anchor names. LVMH reported a 14% decline in organic revenue growth for its Fashion & Leather Goods division in Q4 2024, the steepest deceleration since the pandemic recovery. Kering's Gucci brand posted a 20% revenue drop in the same period, missing internal targets by €340 million. Hermès, long insulated by waitlist dynamics and vertical manufacturing, reported its first year-over-year profit decline in eleven quarters, with operating margin compression of 190 basis points in its Asia-Pacific segment. The common thread: Chinese consumers who once accounted for 32% of global luxury spending are now cutting discretionary outlays, and wealthy North American buyers are shifting toward experiences over goods.

This matters because consensus models still embed pre-2023 growth assumptions. Sell-side analysts are modeling 8-11% annual revenue growth for the sector through 2026, a figure RBC calls "structurally detached from present buying behavior." The bank's proprietary luxury card-spend tracker shows a 19% year-over-year decline in transactions above $5,000 across Mainland China, Hong Kong, and Macau. North American department-store luxury sales fell 7% in January, the fourth straight month of contraction. Meanwhile, inventory turns at LVMH and Kering have slowed to 2.1x annually, down from 2.8x two years ago, suggesting either overproduction or weakening sell-through. If RBC's revised estimates prove correct, the sector faces a €12-15 billion equity-value markdown over the next six months, with Kering and smaller houses like Burberry absorbing disproportionate hits due to thinner balance sheets and higher fixed costs.

Allocators should watch Q1 2025 earnings calls in late April for three specific disclosures: updated guidance on China same-store sales, any mention of promotional activity or markdown rates in Europe, and commentary on wholesale channel health. Kering reports April 22; LVMH follows April 24. If either company revises full-year guidance downward or flags inventory issues, expect a sector-wide re-rate. Also monitor any M&A chatter around mid-tier brands like Tod's or Salvatore Ferragamo, which become acquisition targets when larger houses seek growth through consolidation rather than organic demand.

RBC's call arrives three weeks before LVMH's Annual General Meeting, where controlling shareholder Bernard Arnault will face questions about capital allocation. The firm holds €43 billion in cash and equivalents, the highest reserve in company history, yet has completed no material acquisitions since Tiffany in 2021.