PARIS – Hermès trotted along with sales up 16 percent at constant exchange in the third quarter.
Down from its consecutive record quarters, this reflected the overall global slowdown of luxury growth and the end of the post-pandemic spending euphoria, while still putting the French house well ahead of its luxury rivals.
“The solid performance in the third quarter reflects the desirability of our collections all over the world, with a sustained momentum in Asia and in the Americas. More than ever, in an uncertain global environment, we are reinforcing our investments and our teams to support growth,” said Hermès executive chairman Axel Dumas in announcing the results.
While the industry is talking about slowdown particularly as aspirational customers tighten their belts, Hermès doesn’t see that obstacle on its course, according to executive vice president finance Eric Du Halgouet, in a call following the release.
The company is keeping “a careful eye on things to click into the deterioration in a geopolitical context, which could have an impact on tourist traveling but we’re seeing so far is we are clearly or possibly less exposed than others due to our values strategy,” he said, noting Hermès can rely on the stable of its well-heeled customer base.
While the third quarter numbers were a marked drop from the company’s second quarter sales growth of 28 percent, it was still ahead of analysts’ targets, which had expected growth to come in at 13 percent for the three months.
“Hermès remains one of our preferred names in the luxury space given its over-indexation to high-end customers, who tend to be more resilient in times of macro slowdowns,” said Barclay’s analyst Carole Madjo.
“It confirms our idea that higher exposure to quality names is the most appropriate course of action for investors in a moderating market where the sector has corrected in broad-brushed fashion,” added Bernstein analyst Luca Solca.
Shares were up 2.4 percent in mid-morning trading on the news.
Asia, where China has provided an exceptional boost for the brand since its reopening, lagged, with sales up 10.2 percent across the region in the third quarter. The company noted it was playing against a strong comparison basis as they had been “exceptional” in the country last year.
Still, Du Halgouet said Hong Kong has seen an historic rise in footfall, up 50 percent and strong sales to local customers. Macao has benefitted from inter-regional tourism, while in mainland China “revenue is up double digits,” he said.
Hermès will continue to invest in China, with a new store opening in Tianjin in July and will stay at a “pretty constant” pace of rolling out new stores there. A second store is slated for Chengdu before the end of 2023.
Despite high youth unemployment and looming real estate crisis there, Du Halgouet brushed off any talk of headwinds, viewing them as short term issues that didn’t affect the company’s view that “potential for development continues to be very strong in the medium and long term.”
“There will be resumption of growth [and] further growth of the middle class,” he said. “This is also why we’re continuing investments at the same pace.”
Japan remained the most resilient territory, with sales up 24.1 percent at constant exchange in the third quarter, and the Americas held its own with an uptick of 20.4 percent.
Sales in the Americas were riding high on the opening of a new store in Los Angeles in July, after Aspen in June.
Globally, the opening and revamp pace will continue across regions, with its Chicago store reopening at the end of this week. Stores in Bordeaux, France, and Seoul, South Korea are also being overhauled.
Proof that the house sees no sign of demand abating, it’s accelerating its investment spend to roughly 900 million euros and upping its production capacity across categories.
Watches, textiles, leather goods, home goods and fragrance will all “ratchet up,” Du Halgouet said, with investments in its integrated facilities and production partners.
Silks are already “at full capacity” and inventory flying out of stores, while the four leather workshops under development in France should increase volume by 6 to 7 percent and perhaps quell the seemingly insatiable demand for its popular handbags.
Watches remained the strongest performing category in the third quarter, up 22 percent, while ready-to-wear and leather goods performed well, up 18.3 percent and 15.8 percent respectively.
Price increases are on the cards for next year, but Du Halgouet said they would be in the mid-single digits despite the brand being hit hard by currency fluctuations around the globe.
In the fourth quarter, Hermès will up its marketing spend with several events around the globe. Though brick-and-mortar remains its main draw, it will also continue to invest in omni-channel development.
Looking at the first 9 months of the year to Sept. 30, growth was up 22 percent at constant exchange.
Asia, excluding Japan, looked stronger in that framing, with sales up 21 percent. The company noted that the region continued its strong momentum. Sales were robust in Greater China, Singapore, Thailand, Australia and Korea.
“The group continues the year 2023 with confidence, thanks to the highly integrated artisanal model, the balanced distribution network, the creativity of collections and the loyalty of clients,” the company said in a statement.
“In the medium-term, despite the economic, geopolitical and monetary uncertainties around the world, the group confirms an ambitious goal for revenue growth at constant exchange rates. Thanks to its unique business model, Hermès is pursuing its long-term development strategy based on creativity, maintaining control over know-how and singular communication.”
