Burberry Group PLC has been identified as a leading turnaround prospect within the struggling luxury sector, according to a recent report by RBC Capital Markets. The assessment comes as investor sentiment towards luxury goods weakens, impacting companies like Burberry and Watches of Switzerland Group PLC, with a lack of earnings momentum cited as a key concern.
RBC analysts reported that feedback from meetings with US investors indicated “some of the weakest” sentiment observed since 2014-2016. This downturn is attributed to a failure of recent financial reports to demonstrate a sustained recovery in demand from Chinese consumers or deliver the necessary earnings upgrades to bolster sector performance in 2025. The broker’s momentum scorecard for February revealed flat or negative earnings trends across most companies under its coverage.
Despite mixed valuations, RBC believes Burberry possesses the potential for earnings improvements in the latter half of the year, positioning it as a preferred turnaround option. Watches of Switzerland Group PLC was also highlighted as a standout performer, benefiting from positive earnings momentum. RBC’s assessment, published on February 17, 2026, suggests a selective approach to investment within the luxury market is crucial.
The report also examined other major players in the luxury market. Louis Vuitton Moet Hennessy is seen as increasingly attractive with a 12-month outlook, while Hermès is expected to maintain revenue growth due to its defensive positioning. EssilorLuxottica was noted for its resilience to macroeconomic factors, driven by product innovation and specific company dynamics.
Beyond luxury goods, RBC continues to favor Nike Inc within the sporting goods sector, citing the company’s progress in running footwear and a restructuring of its organizational framework. Analysts anticipate a revenue recovery beginning in calendar year 2026, potentially boosted by the World Cup, though they acknowledge the path to recovery will be uneven.
The broader economic climate is also influencing investor outlook. RBC analysts have raised concerns about the potential impact of artificial intelligence on white-collar employment and its subsequent effect on middle-class spending power, adding to the headwinds facing the luxury sector. Investor inquiries into luxury stocks have also declined compared to the previous year, reflecting the prevailing cautious sentiment.