Hermès Again Outpaces Luxury Pack With Q2 Sales Leaping 28 Percent
PARIS — Loyalty, quiet luxury and a multilocal mix helped Hermès International gallop ahead of the pack with a sales jump of 28 percent at constant currency against the backdrop of a U.S. slowdown for luxury in the second quarter, further underlining the French brand’s resilience despite economic softening and geopolitical worries.
“During tough financial times there’s a flight to quality, and possibly we reap some benefits from that,” said Hermès executive chair Axel Dumas following the release of the results.
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He emphasized the house focuses on its artisans and the idea of French construction. No blingy fashion shows or celebrity campaigns here. This quiet approach to luxury boosts the perception of the brand, which it can lean on in tumultuous times.
“People were somewhat anxious…and Hermès is recognized for its quality regardless of other people’s price positioning,” Dumas added.
Their singular focus on the Hermès name gives them an advantage over their more maximal conglomerates that house competing brands. “They are not trying to build a diversified empire — they just focus on organic growth, which gives them better return on invested capital,” Bernstein analyst Luca Solca told WWD.
That growth was particularly impressive in the Americas in the first half, with sales leaping 20 percent in the region, far outpacing its competitors.
In recent results Compagnie Financière Richemont, parent company to jewelry maisons Cartier, Van Cleef & Arpels and Buccellati, as well as luxury brands Chloé, Delvaux and Dunhill, saw sales in the Americas down 2 percent in the second quarter, which it credited to an overall slowdown in luxury spending from aspirational consumers.
LVMH Moët Hennessy Louis Vuitton said sales were down 1 percent in the U.S. in the same period, from an 8 percent increase at the beginning of the year. The Louis Vuitton, Loewe, Dior, Givenchy and Fendi parent company said sales drops of entry level products and a slowdown in second-tier cities “were a clear sign” that aspirational customers were changing their shopping habits.
But those concerns did not affect Hermès’ local-first strategy and acquisition of those young, aspirational consumers.
“In particular, the middle class is younger, more numerous and richer,” Dumas said. Price hikes of 3.5 percent in the U.S. that rolled out at the beginning of the year seemingly had no effect on demand. Dumas noted that boom in sales was based on volume — not price — growth to hit its numbers.
Stores in Los Angeles and New York “outperformed,” Dumas said, but the executive noted that while conventional wisdom is that demand is weakening among aspirational customers outside of major cities, it has not been the case at Hermès. “It’s true compared to maybe some others our retailing is tighter in the U.S., but all of our business [categories] have grown,” he said.
He added that the growth of the middle class and shifting demographics in Asia and the U.S. are driving sales.
The overall second-quarter results beat analyst expectations by four points, securing the company’s position as the luxury sector’s leader. The stock closed up 3.94 percent on the Paris Bourse following the strong numbers. It was a mixed bag for luxury stocks on Friday, with Kering down 1.15 percent on the news that it has purchased a 30 percent stake in Valentino, with an option to buy the rest, and Prada down 3.76 percent after it revealed it is launching beauty. LVMH barely budged, up 0.11 percent.
“Hermès blows the whole luxury goods industry out of the water,” Solca said. “Noblesse oblige, Hermès stands head and shoulders above anyone else.”
The company had so much pent-up demand coming out of the pandemic, coupled with a slowdown in production over those years, that it can dip into its long waiting lists. “They sell less than the market would take and they benefit from very strong desirability. This gives them steadier growth,” Solca said. “This allows them to plow through patches of softer demand.”
Considering the pent-up demand, it’s likely the market would absorb even more, giving them even more wiggle room on pricing in the face of any potential slowdown, though Dumas indicated it is not in the cards for the second half of the year.
Revenues reached 3.32 billion euros in the three months to June 30. The luxury house continued its strategy of store openings in smaller cities in the U.S., with a new outpost in the holiday destination of Aspen, Colorado, in June, which was hot on the heels of an opening in Naples, Florida, in February. It also had activations in Austin, Texas, in May.
The executive highlighted the local-first strategy will continue through the rest of the year, opening a new store in the L.A. suburb of Topanga in the U.S, and Chengdu in China, plus revamps in Hamburg, Germany, and Bordeaux, France, in Europe. Communications spend is going to jump, Dumas said, and expect activations and outreach to increase in the second half to “make up for lost time” of pandemic-era closures.
Dumas also noted that it’s not just handbags driving sales. Shoes, jewelry and ready-to-wear have been major growth categories this year.
The jewelry and homewares category was up 36.1 percent at constant exchange in the second quarter; ready-to-wear up 35.1 percent, and silks including its iconic scarves, which sell well at travel points, up 25.8 percent.
The company plans to open four new leather goods production sites over the next four years in an attempt to help fulfill the seemingly insatiable appetite for its handbags, including the Birkin and Kelly models. Sales of leather goods were up 23.2 percent at constant exchange in the second quarter.
Beauty bumped up its sales in the second quarter by 12.4 percent, but the company will focus on this as a growth category in the second half and launch new eye products later this year.
Sales were up 32.3 percent in Asia in the second quarter, with China leading the way as it normalizes following years of pandemic-era policy and rolling store closures. The region rebounded with a strong Chinese New Year, and the company reopened its Beijing store in The Peninsula in April. Singapore, Thailand and South Korea were other standouts contributing to the region, outside of Japan, which remained strong on the loyalty of local clients.
While sales in China are strong, Chinese tourists are staying regional with intra-Asia tourism. Europe has benefited from increased tourist flows attracted by a weak euro currency, but those are mostly from the Middle East, U.S. and Southeast Asia.
“The Chinese are not yet highly present in France, and only marginally in Europe,” executive vice president of finance Eric du Halgouët said. Duty-free airport sales have strongly rebounded, he added.
In the first six months of 2023, revenue was up 25 percent at constant exchange to 6.7 billion euros, and the company hit a milestone of 33 percent consolidated net profit at 2.23 billion euros.
“The 2023 first half results reflect the strength of the pillars of the artisanal model of the house,” Dumas said.
Barclays analysts concluded in a trading note: “The underlying trends thus seem solid, in our view, and we would expect the outperformance of Hermès to continue.”
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