RBC Capital Markets downgraded earnings forecasts across the luxury sector this week after LVMH, Kering, and Hermès each reported quarterly results below consensus, with the three French houses representing €380 billion in combined market capitalization now trading on multiples RBC termed "structurally unsupportable" given current China trajectory. LVMH missed revenue estimates by 4.2% in Q4, Kering's Gucci brand posted its seventh consecutive quarter of declining sales, and Hermès—previously insulated—showed deceleration in Greater China for the first time since Q2 2023.
The revision centers on China, which still accounts for roughly 30% of global luxury goods consumption but where consumer confidence indices remain near post-lockdown lows. RBC analysts noted that sell-side models had assumed a 6-8% rebound in Chinese luxury spending for 2025; actual data through February shows flat to -2% growth year-over-year. LVMH's fashion and leather goods division, which generates 48% of group revenue, saw organic growth slow to 2% in Q4 from 9% the prior quarter. Kering's total revenue fell 11%, with analyst consensus having predicted a -7% decline. Hermès, the sector's quality anchor, posted 12% growth but guided softer for Q1, an unusual move for a house that rarely pre-announces.
What matters is the valuation trap. European luxury equities entered 2025 trading at an average forward P/E of 24x, a 40% premium to the CAC 40 index, predicated on assumptions of Chinese stimulus translating to handbag velocity. That thesis now requires revision. RBC cut target prices on LVMH by 9%, Kering by 14%, and—most telling—trimmed Hermès by 5%, the first downgrade for that name in eighteen months. The firm also reduced sector earnings per share estimates by an average of 8% for 2025 and 11% for 2026, citing both demand and margin compression as brands resist price increases that Chinese consumers have begun to reject. Kering's operating margin in leather goods contracted 320 basis points year-over-year; LVMH's fell 180 basis points. Hermès held margin flat, but only by reducing marketing spend, a lever with limits.
Allocators should watch three events. Hermès reports March quarterly sales in mid-April; that print will clarify whether softness is tactical or structural, given the brand's exposure to the highest-spending cohort of Chinese consumers. LVMH hosts its annual shareholder meeting in mid-April as well, where management typically signals capital allocation shifts; any mention of store closures or inventory destocking would confirm margin pressure is deepening. Third, Chinese consumer confidence data releases on April 15th, following the National People's Congress fiscal announcements; if confidence fails to improve despite announced stimulus, the sector reprices further.
The luxury correction is no longer a Kering problem or a LVMH problem. It is a multiple problem across €380 billion in European market cap that assumed Chinese demand would recover on a schedule it has not kept.