Bottom Fishing in European Luxury: Can Earnings Quality Weather the Storm?

European luxury stocks have sold off sharply amid weakening Chinese consumer demand and concerns over the sector’s medium-term growth outlook.

The selloff has been driven primarily by valuation compression, with forward 12-month P/E multiples contracting by ~40% YTD across LVMH, Hermès, Kering and Burberry, compared with a 7% average decline in forward EPS estimates over the last 180 days.

StarMine Analyst Revision Model (ARM) scores have declined sharply across the group, pointing to weakening analyst sentiment. Yet all four companies maintain strong StarMine Earnings Quality (EQ) scores, suggesting that underlying earnings remain supported by relatively sustainable sources. Strong margins and pricing power can provide an additional buffer against weaker demand.

Can strong earnings quality help these companies weather the downturn, or will a structurally weaker growth outlook justify a sustained reset in valuation multiples?