Luxury's split between winners, losers set to grow

For Europe's luxury stocks, this earnings season will hammer home the widening gulf between the winners and the losers.

- JULIEN PONTHUS SAGARIKA JAISINGHANI MICHAEL MSIKA

The industry got off to a promising start with robust earnings from British trench coat maker Burberry Group Plc that sent its stock up as much as 9% and better-than-expected sales at Cartier owner Richemont. But forthcoming reports from LVMH Moët Hennessy Louis Vuitton SE, Kering SA and Salvatore Ferragamo SpA look less promising.

If sales at these companies undershoot already weak forecasts, the shares may extend this year’s drop that has wiped out market value of as much as €175 billion ($205 billion). While the outlook for luxury shares is crucial for Europe's stalled equity market rally given the weight of these companies, investors have to be more selective about the stocks they pick.

“It's not going to be one-tide-lifts-all-boats for the sector,” said Stefan-Guenter Bauknecht, a senior portfolio manager at DWS. “It really depends on the category and how the brand is perceived in the category. And the VIP certainly helps.”