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Investing.com -- RBC Capital Markets maintained a cautious stance on the luxury sector after a mixed second-quarter earnings season, pointing to weak earnings momentum and a lack of fundamental demand support.
The broker said share price moves were driven more by positioning and sentiment than fundamentals, with quality names generally underperforming value stocks.
Despite largely poor year-to-date share price performance, RBC’s highest conviction picks are confined to what it described as the “most dislocated” or “idiosyncratic” opportunities.
In luxury, Burberry (LON:BRBY) remains a top choice due to its turnaround potential, while in sporting goods, Adidas (ETR:ADSGN) is highlighted for its valuation and momentum.
RBC reiterated its Outperform rating on Adidas with a price target of €260, calling it “arguably the most dislocated stock across our coverage in terms of revenue/earnings growth vs valuation.”
The firm’s analysts expect the company to meet its €1.7–1.8 billion EBIT guidance by the third quarter, which could catalyze positive earnings revisions. They also suggested management should consider a share buy-back to signal confidence given the stock’s depressed valuation.
Burberry, also rated Outperform with a £15 price target, has been the best-performing stock in RBC’s coverage this year, rising 22%.
The broker said early strategic changes under new CEO Joshua Schulman are starting to show results, but sustained outperformance will hinge on the successful execution of the Autumn/Winter 2025 collection.
“We continue to like Burberry’s turnaround credentials and it remains one of our preferred luxury ideas,” a team led by Piral Dadhania wrote. Burberry is the only stock in RBC’s luxury coverage with positive EPS momentum.
RBC also kept Outperform ratings on Hermes (EPA:HRMS) and LVMH (EPA:LVMH).
It said Hermes’ defensive attributes and above-average revenue growth profile remain appealing despite moderating trends in some categories, while LVMH’s recent underperformance offers a “fairly attractive” risk/reward setup, supported by expected near-term improvement in Fashion & Leather Goods from easier comparatives
For EssilorLuxottica (EPA:ESLX), RBC said the Ray Ban owner’s stable performance and diversified earnings base across categories, regions, product lines and channels warrant its premium valuation.
The firm remains cautious on Swatch Group (SIX:UHR), maintaining an Underperform rating due to significant operating deleverage.
RBC notes that all its covered stocks face some level of U.S. tariff risk, with Nike (NYSE:NKE) the most exposed, followed by EssilorLuxottica. While macroeconomic data was mixed across key regions, micro indicators such as website traffic, Swiss watch exports, and tourist arrivals showed signs of slowing.