Loyal local consumers and leather goods are helping buck the global slowdown in luxury spend, even as aspirational Chinese consumers are retreating.
The French luxury firm trotted ahead of its rivals in the first quarter, with sales up 17 percent at constant exchange rates to 3.81 billion euros.
With all regions logging double-digit increase in sales, vice president of finance Eric du Halgouët described the growth in the three-month period ending March 31 as “very healthy and evenly distributed across all markets” in an analyst call on Thursday.
Japan, where a new boutique in Tokyo’s Azabudai Hills area opened in February, grew the strongest, gaining 25.2 percent at constant exchange rates.
While the rest of Asia recorded an overall 13.9 percent increase, the company noted softer traffic in Greater China following the Lunar New Year.
“But this doesn’t have any repercussions on our numbers since it was offset by an increase in the average basket purchases,” du Halgouët said in response to an analyst’s question. He later added that the “slight drop” in footfall had affected the aspirational demographic in China.
For Bernstein luxury goods analyst Luca Solca, “it does raise the question whether the non-leather goods métiers, which are more exposed to the middle class, can keep up the pace, as Hermès increases both leather goods volumes and prices,” he wrote in a research note.
Du Halgouët said the 12 percent increase in sales in the Americas included a 7 percent increase in prices. “It is lower than the average increases of 8 [to] 9 percent and that’s due to the value of the dollar, so the volume effect is all the more important when you compare this overall growth and remove the price increase,” he said.
“The U.S. is a market where we have full confidence for the midterm,” he said, noting the company would nonetheless be prudent in the second half of the year due to the elections.
He described the footfall in the U.S. as stable, with stores on the East and West Coast “doing really well,” while fewer visitors to Hawaii dragged on numbers.
Another sign of the company’s continued confidence in both China and the U.S. is that most store openings will be concentrated in those territories, he added. Its 41st store in the U.S. opened in Princeton, N.J., on Wednesday.
Chinese clients were also shopping in Europe and France in the first quarter. “In Europe, it’s mainly local clients but our export clients [cohort] is made up in the same way as first-quarter 2023,” said du Halgouët, with a mix coming from Greater China, South Asia, Middle East and the Americas.
Separately on Thursday, Hermès announced the opening of a second store in , its third boutique in India.
Hermès executive chairman Axel Dumas said the figures reflected “the loyalty of our clients worldwide, the strength of the group’s artisanal model and the desirability of our creations in a more complex environment.”
With its first-quarter figures, the French luxury leather goods firm is staying ahead of rivals LVMH Moët Hennessy Louis Vuitton, whose in like-for-like terms, and 10 percent on a comparable basis in the three months to March 31.
Noting Hermès had beat consensus estimates of 13.9 percent growth in the quarter, Solca said the company benefited from “a significantly deeper price increase reservoir, as it has been lagging competitor price increases out of the pandemic.”
Despite this, Hermès shares dipped 2.8 percent in morning trading.
After the publication, Barclays analyst Carole Madjo wrote that “the comments around the weakness of the Chinese aspirational shoppers was a bit of a new theme and contrasted with the comments of LVMH that was not seeing any particular difference in China by cohort as stated in their [first-quarter] sales update.”
Growing fastest in the quarter was the “other Hermès sectors,” which includes jewelry and home products that recorded a 24.5 percent leap in sales.
Jewelry benefited from an increase in volumes and value, according to du Halgouët, both for small to medium pieces as well as the high jewelry segment.
“There is one métier where we have a strong value effect and that is jewel-making,” he said. “And that helped us offset in China, this slight drop in volumes so we continue to invest in jewelry.”
The maker of the Kelly and Birkin bags also saw sales in its core leather goods and saddlery business grow 20.3 percent. The company plans to boost its production with four additional leather goods workshops by 2027, including one coming on stream this year.
“But we can’t extrapolate that for the whole year for a simple reason: the Chinese New Year is always a peak in leather goods demand and that’s the five extra points that goes above our annual target,” set at 15 percent, du Halgouët said in response to an analyst’s question.
Asked about inventory levels, he said they were relatively homogenous across regions, with a dip in Greater China post-Chinese New Year celebrations, with deliveries planned to make up for this. “There is no overstocking, there is no scarcity either,” he added.
Ready-to-wear revenues gained 15.9 percent while beauty rose 4.3 percent.
Watches also grew 4.3 percent, a performance Citi described as a miss in a note after the results. Du Halgouët said continued growth in the face of a high year-on-year comparison basis and a “slight drop in Greater China in keeping with Swiss watch export figures” could be attributed to the company’s increased presence in the more resilient high-end mechanical segment.
The launch of the Hermès Cut at the Watches and Wonders fair and in stores in April was part of that strategy.
Compagnie Financière Richemont will be the next luxury player to present its figures, with full year for the 2024 financial year coming May 17.