European luxury sector forecasts 5% sales growth in 2026 after two-year slump

Investing.com -- European luxury goods companies are poised for recovery in 2026 after two years of stagnant sales and earnings declines of roughly 20%, according to a recent UBS report analyzing the sector’s outlook.

UBS projects 5% organic sales growth for 2026, rebounding from flat performance in 2025, with earnings per share expected to climb 12% after dropping 12% this year. 

The weighted average EBIT margin is forecast at 21.3%, up 50 basis points, following a 510 basis point contraction over 2023-2025, according to the brokerage. 

The anticipated turnaround hinges on stabilizing Chinese consumer demand and industry-wide creative renewal. Chinese shoppers, representing approximately 26% of sector sales in 2025, showed early signs of recovery after significant weakness throughout the year. 

The industry responded by reintroducing entry-level price points and appointing new creative directors, 15 major brands made changes in 2025 versus eight in 2024.

Volume growth is expected to return at 3% in 2026 after two consecutive years of declines, with price increases contributing roughly 2%, a sharp deceleration from the 8% average price hikes in 2022 and 6% in 2023.

American consumers, accounting for about 25% of sector sales, are projected to outperform with 7% growth in 2026, up from 4% in 2025, and contribute 34% of overall sector growth. 

European shoppers, representing 17% of sales, are forecast to grow 6% and contribute 16%. Japanese consumers, at roughly 10% of sales, are expected to grow 4%, though growth faces headwinds from China-Japan tensions affecting tourist spending.

The brokerage identifies a shift away from the "quiet luxury" aesthetic that dominated the past three years, characterized by minimalist brands like Loro Piana and Brunello Cucinelli, toward bolder, maximalist designs. 

Sales accelerated for pattern-focused brands like Missoni and Pucci, with luxury fashion cycles typically lasting three to five years.

Jewelry is expected to continue gaining market share despite investor concerns. The category rose from 15% of aggregated sales in 2021 to 18% in 2024, while leather goods declined from 46% to 44%. 

UBS attributes jewelry’s strength to pricing discipline, the Cartier Love bracelet increased 165% in price since 2010 versus 375% for the Chanel jumbo flap bag.

The sector excluding Hermès trades at an 83% premium to MSCI Europe, above its five-year average of 75%, anticipating earnings momentum after two years of downgrades. 

UBS named Swiss luxury conglomerate Richemont and French luxury giant LVMH as top picks. The brokerage downgraded Italian fashion house Prada to Neutral and upgraded French-Italian eyewear maker EssilorLuxottica to “buy.”

UBS cautioned that recovery remains early-stage, with meaningful earnings acceleration not expected until second-half 2026 due to typical lead times between runway debuts and store availability.