PARIS – What is a luxurious slowdown? Hermès International continues to buck this trend and outperform its peers, reporting third-quarter sales growth of 11.3% at constant currency to €3.7 billion.
This puts the Birkin bag maker significantly ahead of other French luxury goods companies such as Kering, which reported a 16 percent decline in sales, and LVMH Moët Hennessy Louis Vuitton, which reported a 4.4 percent revenue decline in the third quarter. Exceeds.
Hermès continues to grow with a resilient ultra-high-net-worth and loyal customer base, particularly in Asia and the United States.
Eric Du Arghouet, Hermès’ executive vice president of finance, said in a conference call after the announcement that the decline in retail foot traffic in China had slowed since February’s Lunar New Year, but this was offset by an increase in average spending. said.
“It’s important that our customers remain loyal in China, which allows us to continue selling our products there,” he said. Hermès’ bottom-up local ordering model ensures stable inventory, especially for handbags.
The executive touted that Hermès remains strong in China, even as competitors stumble.
“What has surprised us most over the past three quarters is probably the group’s resilience relative to other brands, and in contrast, the resilience of Hermès relative to other peers, particularly in Greater China. ” he said. Weak sales of handbags were offset by increases in jewelry and ready-to-wear.
De Arghouet noted that Hong Kong has seen a more pronounced slowdown in foot traffic, partly because local customers are traveling to mainland China, particularly Shenzhen, to shop. Hermès will open a renovated store in the city this week, hoping to capture some of the influx of local tourists.
Sales in Japan rose 23% in the three months to September 30, due in part to strong local customer demand. According to Du Arghouet, fewer than 10% of sales in Japan come from tourists seeking cheaper products due to the weak yen. The company opened a new store in Tokyo in June, making it the second new store in Japan this year.
The rest of Asia (excluding Japan) recorded 7% growth, supported by sales in South Korea, Singapore, Thailand and Australia, where the company opened a renovated store in Melbourne in June. He said a slight slowdown in sales volumes in the region was being driven by rising values.
Chinese customers are staying at home and spending less overseas, especially in France and Europe. Although these regions suffered a bit from a decline in Chinese tourists, travelers from the United States and the Middle East filled the tourist gap.
Business in the Americas remained stable, with third-quarter revenue up 13%, roughly on par with recent quarters. Most of those are domestic customers, and sales are “off to a strong start in October,” Du Argoet said.
Europe, excluding France, grew by 18% due to strong tourist flows throughout the summer.
In France, sales increased by 14%, although there was a slight slowdown in Paris due to the Olympics.
The company’s three stores in the capital took a hit in July and August, but that was offset by an increase in tourist traffic to the south of France. Thanks to the game, the Paris store recovered, and sales increased in early October, du Arghouet said.
Du Arghouet was keen to stress that the strong numbers were not due to price increases, but to sales volumes. The company raised prices by about 9% at the beginning of the year, but expects them to rise further in early 2025 to offset the negative effects of inflation, wage increases and currency exchange rates.
However, next year’s price increase will not be as steep. “In any case, we won’t reach this year’s level of 9%. We’ll go much lower,” Du Arghouet said.
Jewelry is one category that is being reevaluated as gold prices continue to soar.
This result easily exceeded the 10.5% growth expected by analysts. Bernstein analyst Luca Sorca said, “Hermès is currently the best option to protect the portfolio from the difficult (fourth quarter) situation in which China’s structural problems exacerbate the global economic slowdown. I think this is an opportunity.”
Shares rose 2% in midday trading.
Hermès’ exclusivity is pushing out competitors, even as consumers become more cautious. “Many customers perceive Hermès products to be a good investment as they tend to retain high value over the long term,” said Third Bridge analyst Yangmei Tan.
The watch category proved to be the weakest point, with third-quarter sales down 18.2%, the only category to decline. Du Hargouet said part of that was due to the lack of the third-quarter “Craft Time” sales event, which was moved to November this year, and a category-wide decline across brands.
Still, the design will be appreciated. “There are very few things we need to address regarding our product offering, and we will address them soon,” he said, indicating that the company plans to reconsider the “design and physical form” of its watches.
The decline in watches is in sharp contrast to the silk sector, which increased by 4% year-on-year, and the beauty sector, which increased by 10.6%. Both are considered ambitious categories for the company at low price points.
Hermès opened a new silk production facility in Lyon in June to meet demand. “We believe that even if this particular métier suffers in China, it still has great potential for growth,” Du Arghouet said.
Leather goods sales rose 14% in the third quarter, marking the company’s 23rd leather goods sale, as the company introduced new handbag models and increased production capacity at a new factory in Lyon, central France, which opened in September. It became a factory. Leather production capacity increased by about 7 percent last year.
The company’s ready-to-wear segment continued to grow, with sales increasing 13.5% year-over-year, and the company’s jewelry increased 13.6% in the quarter, driven primarily by sales of gold products. The company’s fine jewelry collection continues to perform well, “but it is not the main driver of growth,” Du Arghouet said.
“The rapid increase in demand for non-leather categories such as ready-to-wear and accessories is driven by fashion trends and increased purchases by women and younger consumers,” said Third Bridge’s Tan.
Consolidated revenue for the first nine months of this year rose 14% year-on-year to €11.2 billion in constant currency, despite the company taking a €242 million hit from currency fluctuations.
The company expects to be further hurt by negative currency movements in the fourth quarter, but its guidance remains unchanged, said Carol Duponpietri, head of investor relations.
“In the medium term, despite the economic, geopolitical and financial uncertainties around the world, the Group confirms its ambitious goal of growing revenues at constant exchange rates.” the company said.
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