BofA expects this stock to be the "fastest-growing" name in ailing luxury sector

Investing.com - Luxury sector earnings are anticipated to have slowed in the second quarter of the 2025 calendar year, according to analysts at BofA, in the latest sign of tepid demand for high-end goods during a time of heightened geopolitical and trade tensions.

This year has proven to be difficult for the luxury sector so far, with major buyers in China weighed down by a protracted property crisis and U.S. shoppers grappling with uncertainty around the impact of sweeping tariffs. Even activity in the Middle East, a haven for luxury buying supported by strong tourist inflows and elevated local wealth, has been clouded over by a recent uptick in violence in the region.

In March, consultancy Bain & Co slashed its outlook for global luxury sales, saying it now expects the figure to decline between 2% and 5% this year. Bain, which had previously estimated growth of 0% to 4%, flagged "complex turbulence" in the sector.

Writing in a note to clients, the BofA analysts predicted that quarterly revenues in the segment would slip by 2%, slowing by one percentage point from the prior quarter and 1% below Wall Street estimates.

"The key driver of the slowdown is tourism spend, in both Europe and Japan," the analysts wrote. They highlighted "softer" U.S. luxury spending in June and foreign exchange headwinds as well.

Core earnings from groups reporting first-half results are also anticipated to be 5% below consensus, while the sector as a whole is tipped to be 3% below forecasts for the 2025 fiscal period.

"We think the second-quarter results will be a catalyst for second-half revenue growth and margins to be revised lower again, which will also drag down" 2026 earnings projections, they argued.

Results for the latest quarter are largely due out between July and September, starting with Brunello Cucinelli (BIT:BCU) and ending with Ermenegildo Zegna (NYSE:ZGN).

In individual stocks, BofA expects fashion giant LVMH (EPA:LVMH) to post a 4% slide in quarterly revenues, Kering (EPA:PRTP) to post in-line results deapite a drop in constant-currency sales at its crucial Gucci label, and weakness at Prada (HK:1913) eponymous brand.

However, Cucinelli is anticipated to be the "fastest-growing in the sector," the BofA analysts said, upgrading their rating of the stock to "buy" from "neutral."