Hermes Sales Continue to Grow Despite Wider Luxury Slowdown

Hermes Sales Continue to Grow Despite Wider Luxury Slowdown
The French luxury company said it achieved quarterly sales of €3.7 billion, up 11% at constant exchange rates

By Andrea Figueras, andrea.figueras@wsj.com |  Oct. 24, 2024

Hermes reported a rise in sales for the third quarter despite a slowdown in demand for luxury goods.

Hermes reported a rise in sales for the third quarter as the Birkin handbag maker continued to defy a slowdown in demand for luxury goods that is harming most of its rivals.

The French luxury company said it achieved quarterly sales of 3.70 billion ($3.99 billion), up 11% at constant exchange rates compared with the year-earlier period. The figure was roughly in line with analysts’ forecasts of 3.69 billion euros, according to Visible Alpha consensus.

Growth has decelerated from 13% in the second quarter and 17% in the first, but the figures suggest a sectorwide slowdown didn’t hit Hermes as hard as many of its peers. Analysts credit the company’s relative resilience to its greater reliance on wealthier clients.

Hermes’s results come after LVMH—considered a bellwether for the industry—last week sounded the alarm on the sector’s fortunes. The French luxury behemoth led by billionaire Bernard Arnault reported lower third-quarter revenue that missed market estimates.

Analysts at Bernstein said Hermes’s sales growth was stronger than expected as the company ploughed through the sector’s difficulties and delivered double-digit growth in all regions except Asia.

In the Asia-Pacific region, which excludes Japan, sales rose 1% in the third quarter, Hermes said Thursday. The company it had experienced a downturn in store traffic in China, Hong Kong and Taiwan since the end of the Chinese New Year.

The performance of luxury companies in China has been a major focus of attention for analysts and investors, following challenges flagged by rivals including LVMH, the owner of high-end brands such as Louis Vuitton and Dior.

The country has for years pumped wealth into the sector, but is now facing a number of economic challenges. A sluggish real-estate industry and a weaker labor market led many Chinese consumers, particularly middle-income shoppers, to cut their luxury budgets.

In Japan, quarterly sales were roughly 23% higher, helped by demand from local clients. This market became a bright spot for luxury names in the past reporting season, boosted by a surge in demand from tourists, who took advantage of the weak yen to buy luxury at lower prices.

After the sales surge in Japan the second quarter, many luxury brands hiked prices and companies such as Gucci owner Kering are now grappling with a deceleration there, as the price gap with other countries is becoming less attractive.

Kering said earlier this week that its operating profit would nearly halve this year after posting third-quarter sales below analysts’ expectations due to lower demand for luxury goods in the Asia-Pacific region.

Meanwhile, Italy’s Salvatore Ferragamo joined its larger rivals and said it anticipated the increasingly challenging market environment to persist into the last quarter.

Despite the industry’s woes, some companies have managed to perform better than others, leading to strong polarization trends in the sector. Brands targeting the most affluent shoppers are faring better, as these consumers have continued to be big spenders. In contrast, brands more exposed to a younger, less affluent clientele more vulnerable to economic ups and downs are facing greater difficulties.

Hermes is among the handful of companies that have managed to buck the current slowdown, with Italy’s Brunello Cucinelli also reporting growth. Strong pricing power and brand desirability, particularly for its Birkin and Kelly bags, has allowed Hermes to continue to achieve growth.

At the beginning of the year, Hermes increased prices by 9%. For 2025, price increases will be lower, but they will cover the impact from a negative currency effect as well as higher costs, executive vice-president of finance, Eric du Halgouet, said in an earnings call.

Looking ahead, the company continues to anticipate revenue growth at constant exchange rates in the medium-term, but cautioned on global economic, geopolitical and monetary uncertainties.