Hermes sales defy luxury slowdown

Paris-based Hermes once again defied the luxury downturn to grow sales in the double-digits across all regions except Asia as Chinese shoppers rein in spending on silk scarves and US$10,000 (S$13,433) bags.

Second-quarter sales at the Birkin bag maker grew 13.3 per cent at constant exchange rates for a total of €3.7 billion (US$4.02 billion; S$5.4 billion), in line with consensus expectations compiled by Reuters. Sales in Asia outside Japan rose 5.5 per cent on a like-for-like basis, a stronger performance in comparison to peers including LVMH, Richemont and especially Kering, whose China business has fallen sharply.

Hermes is one of the most reliable performers in luxury even in more difficult times, benefiting from its ultra high-end positioning, carefully controlled distribution and wealthy client base.

Sales have nevertheless slowed since the start of the year, coming down from 17 per cent growth in the first quarter.

First-half operating profit of €3.15 billion and a 42 per cent margin were also in line with expectations despite the more difficult environment.

“The solid first-half results, in a more complex economic and geopolitical context, reflect the strength of Hermès’ model,” said executive chair Axel Dumas. “The group is confident in the future and is continuing to invest, to pursue its vertical integration projects and to create new jobs.”

The group’s biggest division, leather goods, was robust, growing 18 per cent in the quarter as shoppers continued to snap up its coveted Birkin and Kelly model bags, while sales of ready-to-wear fashions and accessories also grew by double digits.

Demand for its iconic silk scarves and watches fell, however, indicating some pressure as Hermes navigates the tougher luxury environment. 

The company’s performance was “solid” in the second quarter although Hermes was “not completely immune to wider trends”, said Zuzanna Pusz, an analyst at UBS. “First-half results confirm the resilience of the business model despite slower Asia-Pacific,” she added.

Shares in the group have gained 6 per cent so far this year and stood at €2,007 at Thursday’s close, giving it a market capitalisation of €213 billion, during a period when LVMH and Kering shares have fallen. 

Paris-based Hermes outperformed the rest of the sector during a luxury boom that peaked during the pandemic, a trend that has continued. While much of the sector’s growth in the past decade has come from brands’ efforts to appeal to more aspirational clients through marketing and expansion of their entry-level product lines, the most exclusive names such as Hermes, Brunello Cucinelli and LVMH’s Loro Piana have largely eschewed this to focus on their core of wealthy customers.

Hermes also profits from the fact that demand outstrips supply for its most coveted products such as the Kelly and Birkin bags, which start at about US$10,000 a piece, as the company carefully controls production. Hermes has said it planned to expand its leather products production capacity by 6 per cent to 7 per cent a year as it opens new workshops and trains specialist artisans.

It is also less reliant on tourist flows for sales than some of its competitors.

Adrienne Klasa © 2024 The Financial Times

This story first appeared in The Financial Times