Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
French luxury goods group Hermès has continued to defy the broader global recession in its sector, posting strong quarterly sales growth.
The Paris-listed group, known for its silk scarves and Birkin handbags, said on Thursday that sales for the three months to September rose 11.3% at constant currency to 3.7 billion euros, in line with analysts’ expectations of 3.69 billion euros. reported. Polled by LSEG.
Hermès shares rose 2.33% to 2,109 euros in morning trading, taking their annual rise to 11%. Shares in rival LVMH and Gucci owner Kering fell 14% and 41%, respectively, as the sector was weighed down by weak consumer demand, particularly in China.
Hermès has weathered the sector’s downturn better than its competitors, as it targets the most affluent luxury consumers with long waiting lists for its most popular handbags, which can sell for tens of thousands of pounds. Ta. But analysts note that some of the brand’s products are also successful among ambitious consumers.
The 20% increase in sales across Europe, excluding France, which rose 13%, was driven by strong sales of textiles, leather goods and perfumes. Sales in France were affected by disruption from this summer’s Olympics, but this was partially offset by strong sales in coastal towns.
Eric du Arghouet, executive vice president of finance, said on an investor call that the strong performance in Europe was mainly due to tourists from the United States and the Middle East, but there was a slight decline in Chinese buyers.
But jewelry and watches, which together account for about 40% of the brand’s revenue, fell short of expectations.
Watch sales in particular fell 18%, double the expected 9% decline. Du Arghouet said this is part of the normalization process following the strong growth of the past few years.
Despite the industry’s downturn, analysts expect Hermès and Italy’s Prada Group, which will report results next week, to stand out.
Hermès said it remains firm on its medium-term sales growth outlook despite geopolitical headwinds and financial uncertainty. The company is ramping up investments in manufacturing capacity, marketing and IT, while expanding its workforce and offering employees increased pay and free share plans.
Hermès continues to stay ahead of major French rivals such as Louis Vuitton and Dior owner LVMH, which was hit by China’s economic slowdown in the third quarter, and Kering, which is struggling to turn around Gucci. There is.
“The valuation premium[for Hermès]is higher than that of a company with relatively favorable revenue growth, margins, cash flow and profit prospects, especially at a time when the luxury sector remains unpopular,” Citi said in a note. “This appears to be justified by the company’s business model.” .
The company’s current pre-tax profit and interest margin of 40% appears to be a good “indicator” for the future, it added.
Recommended
Meanwhile, LVMH and Kering have also pointed to slowing sales growth in Japan as the strong yen turns away foreign shoppers, a trend that has also frustrated Hermès.
“Unlike its peers, Hermès primarily interacts with consumers in Japan, so it was less affected by the slowdown in Chinese tourism,” Barclays analysts said in a note.
Kering warned on Wednesday that full-year operating profit would be nearly halved from a year earlier, one of a series of profit warnings that have sent the company’s stock price lower through 2024.
Gucci’s sales in the third quarter fell 25% from a year earlier, and Kering did not give a 2025 outlook for when a significant improvement would occur. Kering shares rose 1.6% in early Paris trading.
“The sector, and Kering in particular, is torn between two powerful forces. On the other hand, as with Kering last night, we view current trading as weak,” Bernstein analyst Luca Sorca said. ” “On the other hand, the actions of the Fed and Chinese authorities predict a more supportive environment.”
But he warned there were “company and brand-specific issues facing Kering”.
