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French luxury group Hermès has continued to defy the broader global downturn in the sector as it posted a sharp increase in quarterly sales.
The Paris-listed group, known for its silk scarves and Birkin handbags, reported on Thursday that sales rose 11.3 per cent to €3.7bn on a constant currency basis in the three months to September, in line with the €3.69bn forecast by analysts polled by LSEG.
Shares in Hermès were up 2.33 per cent to €2,109 in morning trading, taking their gain for the year to 11 per cent. Those of rivals LVMH and Gucci owner Kering have fallen 14 and 41 per cent respectively, as the sector has come under pressure because of weakening consumer demand, especially in China.
However, Kering shares were actually up 1.6 per cent in early Paris trading despite warning on Wednesday that its profits would almost halve this year after sales at Gucci plunged.
“The sector, and Kering above all with it, is torn between two powerful forces: on the one hand, we see — like last night for Kering — weak current trading,” said analyst Luca Solca at Bernstein. “On the other hand, the actions of the Fed and Chinese authorities anticipate a more supportive environment.” However, he warned that there were “company and brand-specific issues Kering is confronting”.
Hermès has weathered the sector’s slowdown better than rivals because it targets the wealthiest luxury consumers with long waiting lists for its most popular handbags, which can sell for tens of thousands of pounds. However, analysts have noted some of the brand’s products have also been successful among aspirational consumers.
The 20 per cent sales growth across Europe excluding France, which was up 13 per cent, was fuelled by strong textiles, leather goods and perfume sales. Sales in France were affected by disruption from the Olympic Games this summer, which, however, was partly offset by strong sales in coastal towns.
Eric du Halgouët, executive vice-president finance, said on an investor call that the strong European performance was mainly driven by US and Middle Eastern tourists while there was a slight drop in Chinese buyers.
However, jewellery and watches, which together make up roughly 40 per cent of the brand’s revenue, missed expectations.
Watch sales, particularly, declined 18 per cent, twice as much as the forecast 9 per cent drop. Du Halgouët said this was part of a normalisation path following strong growth over previous years.
Despite the sector’s downturn, analysts expect Hermès and Italy’s Prada Group — which reports earnings next week — to stand out.
Hermès said it was sticking to its medium-term revenue growth guidance despite geopolitical headwinds and monetary uncertainties. The company has ramped up investments in its manufacturing capacity, marketing and IT while expanding its headcount and offering staff salary increases and a free share plan.
Hermès has consistently stood out against its big French rivals including Louis Vuitton and Dior owner LVMH, which suffered from the Chinese slowdown in the third quarter, and Kering, which is struggling to implement a turnaround at Gucci.
Citi said in a note that “[Hermès’] valuation premium seems justified by a more defensive business model with relatively good visibility on revenue growth, margins, cash flow and returns profile, particularly at a time when the luxury sector remains out of favour”.
The current 40 per cent earnings before tax and interest margin appeared to be a good “proxy” for the future, it added.
LVMH and Kering, meanwhile, also noted that sales growth in Japan had slowed, as a result of a strong yen that has put off foreign shoppers there — another trend bucked by Hermès.
“Unlike peers, Hermès is mostly exposed to domestic consumers in Japan and was thus less impacted by the slowdown of Chinese tourism,” analysts at Barclays said in a note.
Kering warned on Wednesday its full-year operating profit would almost halve from last year, one in a series of profit warnings throughout 2024 that have also knocked the group’s shares.
Gucci sales fell 25 per cent like-for-like in the third quarter, and Kering gave no forecasts for 2025 on when an improvement might materialise significantly.