Hermès defies luxurious downturn with robust quarterly gross sales

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French luxury group Hermès has continued to defy the broader global downturn in the sector as it posted a sharp increase in quarterly sales.

The Paris-listed group, known for its silk scarves and Birkin handbags, reported on Thursday that sales rose 11.3 per cent to €3.7bn on a constant currency basis in the three months to September, in line with the €3.69bn forecast by analysts polled by LSEG.

While the luxury sector has been under pressure due to weakening consumer demand, especially in China, Hermès shares have risen 9 per cent this year. Meanwhile, rivals LVMH and Gucci owner Kering have fallen 15 and 41 per cent, respectively.

The 20 per cent sales growth across Europe excluding France, which was up 13 per cent, was fuelled by strong textiles, leather goods and perfume sales. Eric du Halgouët, executive vice-president finance, said on an investor call that the strong European performance was mainly driven by US and Middle Eastern tourists while there was a slight drop in Chinese buyers.

However, jewellery and watches, which together make up roughly 40 per cent of the brand’s revenue, missed expectations.

Watch sales, particularly, declined 18 per cent, twice as much as the forecast 9 per cent drop. Du Halgouët said this was part of a normalisation path following strong growth over the previous years.

Despite the sector’s downturn, analysts expect Hermès and Italy’s Prada Group — which is reporting earnings next week — to stand out.

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Hermès said it was sticking to its medium-term revenue growth guidance despite geopolitical headwinds and monetary uncertainties.

Hermès has ramped up investments in its manufacturing capacity, marketing and IT while expanding its headcount and offering staff salary increases and a free share plan.

Citi said in a note: “The valuation premium seems justified by a more defensive business model with relatively good visibility on revenue growth, margins, cash flow and returns profile, particularly at a time when the luxury sector remains out of favour.”

The current 40 per cent earnings before tax and interest margin appeared to be a good “proxy” for the future, it added.

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