Hermes Reports Surge in Fourth-Quarter Sales, Beating Expectations
Hermes, the renowned French luxury-handbag maker, has emerged confident from a slowdown in the luxury sector, as it achieved a significant surge in fourth-quarter sales. The company’s exposure to wealthy consumers played a crucial role in its success during this period. According to Visible Alpha consensus, Hermes reported revenue of €3.36 billion ($3.62 billion) for the last three months of 2023, surpassing analysts’ expectations of €3.26 billion. The revenue growth in all regions was double-digit, with Asia contributing the most with €1.72 billion. The leather goods and saddlery business, which includes bags and small leather items, experienced a 10% increase in revenue to €1.37 billion.
Hermes Shares Rise Amidst Impressive Financial Performance
Hermes’s stellar financial performance has not gone unnoticed in the market. The company’s shares rose 4% to €2,158.50, and its gains over the past year reached an impressive 27%. This makes Hermes the top-performing European luxury stock during this period, underscoring the consistent appeal and strong consumer demand for its products.
Luxury Market Sees Divergence Amidst Economic Challenges
Hermes’s success is reflective of the broader divide within the luxury industry. While some companies rely heavily on status-seeking consumers, others cater to wealthier customers. In an economic environment characterized by inflation and high interest rates, aspirational consumers have shown more restraint in their spending compared to high-end customers. Companies like Hermes, Richemont, and Brunello Cucinelli have been able to sustain sales growth by primarily targeting wealthy consumers. However, after a post-pandemic surge in luxury spending, the market is expected to weaken further in 2024, with estimates projecting low to mid single percentage digit growth for luxury goods sales.
Chinese Market Challenges Impact Luxury Industry Growth
One of the significant factors influencing the normalization of growth trends in the luxury sector is the slower-than-expected recovery from the pandemic in China, which is one of the largest markets for luxury goods. Additionally, the decrease in the number of Chinese tourists traveling abroad has also contributed to this trend. However, Hermes has managed to navigate these challenges successfully due to its strong local clientele in Europe, thereby reducing its reliance on tourist flows.
Robust Financial Performance for Hermes in 2023
Hermes’s operating profit for 2023 rose to €5.65 billion from €4.7 billion in the previous year, marking a substantial increase. Furthermore, the company’s net profit experienced a notable 28% jump, reaching €4.31 billion. Despite economic uncertainties worldwide, such as inflation, geopolitical tensions, and monetary challenges, Hermes remains optimistic about its revenue growth at constant exchange rates in the medium-term.
Mixed Earnings Season for the Luxury Industry
Hermes’s outstanding performance stands in contrast to the varied results reported by other luxury companies during this earnings season. LVMH, considered a bellwether for the sector, reported sales for 2023 that exceeded analysts’ expectations and expressed confidence going into 2024. Richemont and Brunello Cucinelli also experienced success due to their wealthier customer base. However, companies like Hugo Boss, Salvatore Ferragamo, and Burberry disappointed analysts with their results. Kering, the owner of Gucci, faced continued sales declines and predicted that its 2024 profits would be affected by planned investments in its fashion houses, as the company seeks to revitalize its core brand amidst slowing luxury spending.
Analyst comment
Positive: Hermes Reports Surge in Fourth-Quarter Sales, Beating Expectations
Short-term market outlook: Hermes shares expected to continue rising as the company’s impressive financial performance and strong consumer demand drive growth. However, overall luxury market may weaken in 2024 due to economic challenges and slower growth trends in China.
