The launch of Kelly Handbags and scarves fuels optimism the global luxury market’s top performers will be able to continue growing despite economic headwinds.
Hermes’ first-quarter revenue rose 23 percent at constant exchange rates, exceeding analysts’ estimates, the company announced Friday. Early trading boosted the shares by 2%, and the shares are up more than a third since the beginning of the year.
Despite a very good fourth quarter, traffic in China was robust in early 2023, said Eric du Halgouet, Chief Financial Officer. The company reported “very good” sales during Chinese New Year.
These results follow the announcement of an increase in sales by LVMH, the world’s largest luxury conglomerate, which has reported an increase of double digits thanks to a return of Chinese customers following the end of Covid restrictions. Even big technology companies have seen growth slow at a time when LVMH and Hermes remain darlings of investors.
According to Bloomberg Billionaires Index, that has made LVMH Europe’s most valuable company, and Chairman Bernard Arnault the world’s richest person. It was the first time Hermes’ valuation exceeded €200 billion ($221 billion) last week.
A resurgent Chinese consumer may not benefit less powerful luxury players as much as Hermes and LVMH, analysts predict.
An interesting dynamic
For the first three months of the year, Hermes‘ Asian Pacific sales excluding Japan increased by 22.5%. American sales increased 19%, despite concerns about a potential slowdown in the US.
In both China and the US, the trends so far in this month are similar to the first-quarter performance, Du Hangout said, in addition to Hermes seeing a “nice dynamic” in China but no slow down in the US.
“As per the Stifel note, growth exceeded consensus in all regions and categories, adding that Hermes provides “best-in-class sector fundamentals.”
A stellar quarter of growth was reported by LVMH Moet Hennessy Louis Vuitton SE in Asia excluding Japan, but a slower growth was reported in the US.
The company does not expect a surge of Chinese tourists before the fourth quarter, according to Du Halgouet. As a result of China’s massive lockdown in the last quarter, Hermes saw an upsurge in travel flows within Asia in the first quarter.
As a result of Hermes’ strong growth in the ready-to-wear segment, its sales were up by a third. Du Halogen added that the watch unit didn’t reverse its 25% growth in the quarter. Early signs of a slowdown have been reported by some Swiss watch executives.
When it comes to pricing power, Hermes may be in a class by itself. Many bags have higher resale values, and demand for their handbags usually exceeds production capacity.
When Hermes opened a new facility in Louvers, Normandy last week, Executive Chairman Axel Dumas said the company plans to open one new leather manufacturing facility every year in its home country. Currently, the company has 21 leather plants in France. By boosting production, Kelly bags, which in France cost2,82,767 AED, will become cheaper.