Europe’s worst earnings are coming from luxury and auto sectors

Europe’s luxury firms, carmakers and hotels largely disappointed investors this earnings season, making consumer discretionary the worst-performing sector as rising inflation and geopolitical uncertainty derail a long-awaited recovery. Earnings per share for the MSCI Europe consumer discretionary index dropped more than 12% in the first quarter, with companies representing more than 80% of the benchmark’s market capitalization having reported, Bloomberg Intelligence data shows. That compares with expectations of a more modest 2.4% decline, and with stronger-than-expected growth of 5.7% for the broader MSCI Europe index. The sector “is facing an uphill battle to regain momentum,” as automakers and luxury goods companies face squeezed wallets, ongoing tariff threats and growing competition in China, BIoomberg strategists Laurent Douillet and Simbarashe Gumbo said. How the Iran war is hitting luxury spending and tourist flows in 2026 While the Iran war has disrupted operations and darkened the outlook for a range of industries, the consumer discretionary sector “has reacted more negatively to the conflict given the risk of spending power being diverted away from non-food retail and the impact of reduced tourist flows for luxury,” Deutsche Bank analyst Adam Cochrane said. LVMH and Kering both warned of weaker demand as the war in the Middle East hurt activity in the key shopping hub of Dubai, while depressing consumer confidence globally. Even Hermès International SCA — a traditionally more resilient luxury name thanks to its high-end, scarcity-driven model — saw a dip in sales, sending shares tumbling. The same goes for hotels. Sofitel-owner Accor — the most exposed of the global hotel operators to the Iran war — said a strong start to the year in the Middle East region was derailed by the outbreak of the conflict. Its hotels in the United Arab Emirates, which account for about 3% of rooms, were particularly affected. Luxury car sales slump: tariffs, China competition, and Ferrari’s delivery drop Luxury automakers are also struggling, with the fallout from the war compounding existing challenges including fierce competition from Chinese manufacturers and the ongoing effects of tariffs. Stellantis saw the sustainability of its US turnaround questioned by investors, while Ferrari’s higher profit was offset by a drop in first-quarter deliveries as wealthy Middle East customers held back purchases. President Donald Trump’s plan to implement 25% tariffs on cars and trucks from the European Union if the bloc doesn’t swiftly ratify a long-delayed trade deal only adds to the uncertainty. Moncler, Adidas, and BMW: Which consumer brands are outperforming the slowdown There are some bright spots. Mercedes-Benz Group expects a stronger second half of the year on the back of new models and strong orders, BMW expects profitability to remain stable, and Porsche managed to deliver solid profit after its major shift away from electric vehicles. Stellantis’ plans to sell European plants to Chinese manufacturers and its potential re-entry into the Chinese market are also positive, according to Citigroup analyst Harald C Hendrikse. “Whilst none of these are ‘magical’ wands, they do provide some improved roadmap” for the company’s future, he said. Puffer jacket maker Moncler surpassed expectations thanks to strong demand from Asia, while Adidas benefited from momentum in athleisure, retro football jerseys and football gear — pointing to pockets of resilience within consumer behavior. With uncertainty about how long the conflict will last and oil prices still edging higher, the outlook remains cautious. Estimate upgrades have been limited to the energy, semiconductors and materials sectors in Europe this season, Barclays analyst Magesh Kumar said, with broad cuts across consumer sectors. “With no clear sign of an imminent inflection, risks remain skewed to the downside” for Europe’s luxury labels, carmakers and hotels, BI’s Douillet and Gumbo said. By Chloé Meley

Europe’s worst earnings are coming from luxury and auto sectors

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Europe’s worst earnings are coming from luxury and auto sectors

How Bottega Veneta weaved China’s forever it bag