Hermes beats forecasts on robust growth in China, U.S.

PARIS: Birkin bagmaker Hermes said that wealthy Chinese clients snapped up its products in the fourth quarter even as the rest of the luxury sector took a hit from rising COVID infections, helping it beat sales and margin forecasts.

Hermes also saw strong demand from Chinese clients across products during the Lunar New Year, Executive Chairman Axel Dumas said on Friday, adding that the company was looking at 2023 with confidence.

Brisk business in the United States, where the company opened a sprawling store on Madison Avenue in New York in September, also helped lift sales.

Hermes says profits up in first half

European luxury brands have benefited from a strong, post-pandemic rebound as shoppers drew on savings during lockdowns to treat themselves to designer label fashion.

But while much of the industry took a hit in China as COVID infections rose at the end of last year, Dumas said Hermes “continued to see strong desirability in China”.

“We saw things going very strongly in China with double-digit growth …. including in the fourth quarter,” he said. He did not give a detailed figure.

Globally, sales for the three months to end-December rose by 22.9% to 2.99 billion euros ($3.2 billion), outpacing analyst expectations for 17% growth at constant rates, according to a Visible Alpha consensus.

Annual recurring operating profitability reached a record 40.5%, up from 39.3% in 2021, the company said.

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“Hermes has ploughed through the COVID-19 related issues in 4Q22, and produced a very solid beat to consensus,” Bernstein analyst Luca Solca said.

Dividend proposal

In the United States, sales jumped 40.8%, marking a contrast with some rivals that experienced weaker sales there as business shifted to Europe, with travelling Americans taking advantage of the strong dollar.

Hermes said it would propose a dividend of 13 euros per share at its next general meeting on April 20 and would hand out a 4,000 euro bonus to all its employees this year.

The shares were down around 1% in early morning trade. They are up more than 20% year to date.

“The stock has been very strong YTD (year to date), and expectations were high into today, but still the operational outperformance should warrant further gains this morning,” J.P. Morgan analysts wrote in a note.

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The company cited rising labour costs as the reason behind its recent price hikes of around 7%, implemented in January, after price hikes of around 4% in 2022.

Luxury brands such as Chanel and LVMH’s Louis Vuitton have raised prices over the past several years, maintaining the exclusivity of their brands, while Hermes had made more slight adjustments.

UBS estimates Louis Vuitton raised prices by 9.6% in 2020 and 3.7% in 2022, compared to Hermes’ hikes of 1% and 2.1% those years.

Hermes said it has created 4,300 jobs, including 2,900 in France, over the past three years, and planned more hiring this year.