Hermes International SA reported its first-quarter financial results, revealing total revenue of €4.07 billion. This represents a year-on-year increase of 5.6% at constant exchange rates, falling short of market expectations. The disappointing earnings triggered a significant sell-off, with the stock plunging as much as 14% during the trading session. This marked its largest single-day decline since its initial public offering in 1989, erasing over €25 billion in market capitalization.
The luxury group's first-quarter revenue of €4.07 billion missed analyst forecasts of €4.16 billion. Notably, the 5.6% growth occurred despite an average price increase of approximately 6% implemented globally on core product categories at the beginning of the year. Analysts from Deutsche Bank suggested this indicates a lack of actual volume growth, with the revenue increase primarily driven by higher prices.
A regional breakdown shows varied performance. Sales in the "Other Regions" category, which includes the Middle East, declined by 5.9% year-on-year. The home market of France saw a 2.8% decrease. In contrast, the Americas region demonstrated strong growth with a 17.2% surge, reaching €740 million. Japan's market grew by 9.6%, achieving revenue of €400 million. Other parts of Europe, excluding France, maintained a moderate growth rate of 4.5%. The Asia-Pacific region, excluding Japan, grew by only 2.2%, significantly below the market's expectation of 5.84%.
Chief Financial Officer Eric du Halgouet attributed approximately 1.5 percentage points of drag on overall growth to the geopolitical situation in the Middle East. He explained that several of the group's 60 airport wholesale locations worldwide were affected by the conflict. Furthermore, stores in France, Switzerland, and the UK experienced a substantial decrease in visitors from the Middle East, directly impacting local sales.
By business segment, the Leather Goods and Saddlery division, which is the core pillar of the group, grew by 9.4%. However, this growth was not due to an increase in units sold but was largely a result of the global price hikes of 8-9% enacted in January.
Recent analysis suggests that waiting lists for Hermes's leather goods, including for iconic bags like the Birkin and Kelly, may be shortening. On social media, some consumers have noted that sales associates are contacting them more frequently. One user questioned if this was due to performance pressure or a potential decrease in buyers following the price increases. Another claimed they were offered a black Garden 30 bag without a prior purchase history, indicating potentially increased availability.
The impact of the Middle East conflict extends beyond Hermes. Competing luxury groups Kering, the parent company of Gucci, and LVMH also reported significant pressure on sales from the situation in their latest earnings. Kering's first-quarter total revenue fell 6% to €3.568 billion. Comparable revenue in the "Other Regions," including the Middle East, dropped 8%, primarily due to reduced foot traffic and consumption in the area. LVMH reported total revenue of €19.121 billion for the quarter, down 6% on a reported basis but up 1% organically. The group stated that the Middle East market was severely impacted in March, creating an approximately 1% negative effect on its organic growth for the quarter.
Analysts have commented on the heightened investor anxiety. Zuzanna Pusz, an analyst at UBS, noted in late March that "intensifying global uncertainties are causing significant investor nervousness, particularly among those who had been anticipating a long-awaited recovery in luxury demand this year."
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