Hermès Shows Double-digit Growth in H1, Driven by U.S. and Europe
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PARIS — Hermès is on a record-setting winning streak.
The French luxury goods company reported strong sales in the second quarter, up 26 percent to 2.7 billion euros, while achieving record operating profitability in the first half of the year, topping 42 percent of revenues for the first time.
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Sales were driven by strong growth in retail, with the double-digit growth propelled by new store openings in the U.S. and China, and the return of tourists to Europe, despite price increases due to inflationary pressures.
“Thanks to the great sales momentum, the group achieved exceptional results,” Hermès International chief executive officer Axel Dumas said during a call with analysts after the results were published Friday morning.
The numbers significantly outperformed analysts’ expectations, as pent-up demand demonstrates the continued resilience of the luxury market.
In the second quarter, the company posted double-digit increases across all markets, with a 41.4 percent increase in the Americas; a 31.9 percent jump in Europe, marked by the strength of France and the return of tourism, and an increase in Asia excluding Japan, up by 19.1 percent. Japan itself was up 17.9 percent at current exchange rates.
The results marked the brand as likely the “most resilient luxury goods player in a recession,” as it beat market forecasts by a wide margin, Bernstein analyst Luca Solca said in a research note.
Watches were the strongest segment in the second quarter, jumping 59 percent in organic terms, an increase credited to the launch of two new models in the Heure H and the Cape Cod timepieces, while ready-to-wear showed nearly 36 percent growth on the strength of the brand’s accessories and footwear.
Hermès opened a store in Austin, Texas, in April one of the highlights of its U.S. growth strategy, as well as housing an exhibition in Detroit in June. The momentum resulted in a 34 percent boost in sales there.
In the call, Dumas noted the “speed of recovery” in mainland China and Hong Kong reflected the continued pent-up demand after store closures there in April and May, with June selling out the goods that had been held back, though he noted the continued shutdown in Macau was dampening the region.
Dumas addressed the economic uncertainties as global headwinds shift, and noted that market conditions will be diverse for the foreseeable future.
“We have to get used to a world which is fragmented, which was not the case before,” he said. He spliced the markets into three regions, notably Asia Pacific including the U.S. West Coast, other U.S. regions and Europe. Asia and the U.S. West are “phenomenal,” he said.
The U.S. sees “fragmentation between West Coast, East Coast and the center — the three are in progression and different momentum,” he said. Europe is “making up for lost time but may have more macro difficulties in the medium term.”
The brand continues to anticipate high demand for its products, even as supply chain and inflationary pressures resulted in 3.5 percent price increases earlier this year, a number which will hit 4 percent after another hike on July 1 in watches and jewelry because of the increased cost of gold and other metals, he noted.
“I believe that our products are so incredible and incredibly made that we don’t need to have a luxury image by increasing without ground on our products pricing even if we can,” he said. “We will be able to pass [on] the inflationary pressure in 2023 because we have, I think, always been consistent and coherent in this pricing policy.”
He noted that there is no surplus stock across categories, despite the increases. “What has been incredible during the semester is the success of our collection, which means that what we produce is sold, and there is no constitution of stock, which is not exactly a normal situation.”
Dumas addressed the speculation that the brand is inducing scarcity in order to boost its prices, but said the company’s focus on quality and handmade goods is the root.
“They talk about almost a conspiracy that we don’t produce on purpose. That’s not true,” he said, chalking it up to a labor and supply chain squeeze, particularly in leather goods. “There may be bottlenecks.” Other sectors are making up for that scarcity, namely watches, jewelry and home. He noted the company will not invest in machinery to boost production, which he said leads to company resiliency.
If the excess demand trickles down into the secondary market — one sector other luxury companies are investing heavily in — Hermès does not condone such sales channels.
“It’s a pity and this not something that is encouraged by Hermès, and this is in fact something that we don’t approve of,” Dumas said. “It obliges real customers to buy products that are much more costly in other situations and sometimes mixed with counterfeited products, and this is something that we don’t do and don’t at all support knowing that there is a certain hypocrisy in the secondhand market when its products are almost new.”
Looking ahead, the company will open a new flagship store on Madison Avenue in New York in the second half of the year, along with stores in Barcelona, Spain, and Strasbourg, France. Two new stores will open in China — a second Shanghai outpost and one in Wuhan, while stores in Doha, Qatar; Dubai, U.A.E.; Bangkok, and Hong Kong will be renovated and expanded.
An e-commerce platform will roll out in Brazil in the second half, and Dumas noted that online sales are made up of 78 percent of customers that are new to the brand.
He remained bullish about the company’s strength and luxury allure. “Of course, we all read the newspapers of great interest with what’s being said and we see various notes and so forth being written and saying this and that. But you know that Hermès traditionally tends to be impacted after others, fairly infrequently are we the first to be affected,” he said.
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