HSBC downgrades LVMH and Burberry on challenging H2 outlook; shares fall

HSBC has lowered its ratings on LVMH and Burberry to Hold from Buy, pointing to limited visibility into the second half of 2026 and a more difficult run of year-on-year comparisons across the luxury sector. Shares of both companies fell more than 2% in response.

In light of the challenging near-term setup, the bank raised its sector beta assumption to 1.10 from 1.00. “We think it is time to take a breather on some stocks until momentum more visibly improves,” analysts led by Anne-Laure Bismuth wrote in a research note.

Organic sales growth across HSBC’s luxury coverage reached 7.0% year-on-year in the second quarter, ahead of the 5.8% recorded in the first quarter, supported by strong jewellery demand and improving traffic in the U.S. and Asia.

However, the analysts expect that momentum to fade. “We believe H2 2026 won’t get any rosier and could prove more difficult to navigate,” they stated, flagging a tougher basis of comparison, softer mainland China sentiment, and a negative social-media reaction to a Chinese tea brand’s intellectual-property dispute.

For LVMH, HSBC cut its price target to €490 from €600. The analysts highlighted that the Fashion & Leather division, which accounted for 72% of group EBIT in 2025, is recovering only slowly, while Louis Vuitton’s scale — around €20 billion in sales — makes further growth more challenging.

Dior’s turnaround under creative director Jonathan Anderson is progressing, but the pace remains gradual.

Commenting on the stock’s positioning, the analysts noted that valuation is “neverfull” but fundamentals are “not speedy either,” a reference to two of the brand’s iconic handbag models.

HSBC also trimmed its Burberry target price to 1,200 pence from 1,350 pence. While the turnaround led by CEO Josh Schulman has “progressed well,” with shares up roughly 51% since November 2024, the analysts see “limited scope for upwards sales and earnings revisions from here.”

The team cautioned that Burberry would need to significantly accelerate on a two-year sales stack in China to meet consensus estimates over the next three quarters, as comparisons become more demanding.

HSBC’s weighted average cost of capital assumption for Burberry increased to 9.9% from 9.4%, reflecting the higher sector beta.

The bank kept Buy ratings on Richemont, Kering, Moncler, and Prada, while maintaining Hold ratings on Hermes and Swatch.

Richemont remains HSBC’s preferred stock, supported by strong jewellery growth and solid management execution. This is part of the broker’s broader view that hard luxury should continue to outperform soft luxury as spending remains polarized between wealthier and more aspirational consumers.