Hermès' shares fell by as much as 3.9% in early Paris trading after the luxury group reported a 9% rise in quarterly sales at constant currency rates, reaching €3.9 billion ($4.50 billion). This figure was broadly in line with analysts' expectations for a 10% increase. The sales growth was attributed to strong demand, particularly for its handbags, but the market reacted negatively to some signals of vulnerability to a broader luxury downturn.
Concerns about the Chinese market were a significant factor in the share decline, despite Executive Chairman Axel Dumas stating he saw no fundamental changes in the sales climate in China at the moment and maintaining confidence in its long-term potential. However, Dumas also noted, "The momentum of a few years ago is not back at the moment," and described the situation in China as "wait-and-see," indicating that demand was not visibly increasing despite continued spending.
The downturn in China has shifted the focus of European luxury brands towards the United States, where demand has been inconsistent. Hermès saw solid growth in its first quarter, with consolidated revenue reaching €4.1 billion, also up 9% at current exchange rates. The company's recurring operating profit climbed to €3.33 billion in the first half of the year, up from €3.15 billion in the same period last year, and it continues to target revenue growth at constant exchange rates in the medium term despite an uncertain global economic and geopolitical context.
While the Asia-Pacific region excluding Japan showed some of the weakest performance, with first-half sales up 1.5%, Hermès has been resilient due to its affluent customer base who continue to spend on luxuries, contrasting with other brands targeting less affluent shoppers who are increasingly sensitive to price hikes. Jefferies, in a prior analysis, had noted challenges in China and a softer Middle East travel spending, but maintained a "Buy" rating, believing Hermès could regain momentum.
