Hermès defies industry weakness with double-digit growth in handbags
Hermès increases revenue thanks to strong demand for luxury leather goods – despite weaknesses in secondary areas and global headwinds.
Hermès increased its sales by 9 percent to 3.9 billion euros in the second quarter, significantly exceeding analysts' expectations. The leather goods business grew particularly strongly - especially with the iconic Kelly and Birkin bags - with revenues increasing by 12 percent in the first half of the year. This once again sets the Parisian heritage house apart positively from an overall weakening luxury goods market.
The operating profit for the first half of the year amounted to 3.3 billion euros — an increase of 6 percent. Analysts had expected less. In the US, sales increased by an impressive 12.3 percent during the quarter, even though Hermès had raised prices there in the spring. The US market benefits from the willingness to pay of a financially strong loyal customer base, which largely ignores higher tariffs due to the new import duties.
Despite the positive figures, the stock market reacted cautiously: The share lost around 4 percent on Wednesday, even though the price is still 12.5 percent up compared to the previous year. The market capitalization currently amounts to approximately 241 billion euros - roughly on par with LVMH, the long-time leader in the industry.
Above all, the strict control of supply of the most coveted products has helped Hermès to escape the economic downturn. While the appetite for Birkin bags remains unbroken, cracks are appearing in cheaper segments. Sales of perfumes and silk scarves fell by 4 percent in the half-year. Hermès also observes that fewer new customers are discovering the brand, indicating a decreasing presence among so-called aspirational buyers.
In Asia excluding Japan, sales rose by only 3 percent in the quarter – a dampener reflecting the continued caution of Chinese consumers. Nonetheless, Axel Dumas, Executive Chair of the house, emphasized that he did not see any fundamental market change in China and remained convinced of long-term luxury growth there.
To counteract the recently imposed 15 percent tariffs on US imports, Hermès once again raised prices globally in May – even by an additional 5 percent in the USA. According to Dumas, no further increase is currently planned. The current price structure is sufficient to offset the burdens.
Unlike Hermès, competitors like LVMH or Kering recorded significant sales declines in the second quarter.
