French luxury group Hermes International SA reported first-quarter sales growth that missed expectations, with the conflict in the Middle East significantly impacting customer traffic and spending. This challenge has become widespread across the luxury sector. European luxury stocks declined in response, with Hermes falling over 10% and LVMH dropping more than 8%.
Hermes released its first-quarter financial report on Wednesday, showing total revenue of €4.07 billion for the period. At constant exchange rates, sales increased by 5.6% year-on-year, falling short of the 7.44% growth anticipated by analysts.
Regionally, sales in Asia grew by 3.5%, while the Americas saw a 17.2% increase. Europe overall posted a 4.5% rise. However, other regions, including the Middle East, experienced a 5.9% decline. Additionally, sales in France, an important tourist destination, decreased by 2.8%.
This weak performance is not unique to Hermes. Earlier this week, luxury giant LVMH also indicated that the Middle East conflict had negatively affected its results. Similarly, Gucci, the flagship brand of Kering, reported sales figures below expectations, partly due to the situation in the Middle East. The absence of Middle Eastern consumers is emerging as a common factor impacting the performance of the entire European luxury industry.
The conflict has severely reduced customer traffic, with European stores being the most affected. Hermes Chief Financial Officer Eric du Halgouet stated during a conference call that stores in Italy, Switzerland, and the UK have seen a noticeable decline in shoppers from the Middle East. Sales in France fell 2.8% year-on-year, with a particularly pronounced weakness in tourist spending during March.
This situation closely mirrors that of LVMH. According to a Bloomberg report, LVMH's CFO Cécile Cabanis noted that, without the disruption from the Middle East conflict, revenue from its key division—encompassing Louis Vuitton and Christian Dior Couture—would have been "broadly stable" rather than recording a decline.
Beyond the Middle East factor, performance in the Asia-Pacific region (excluding Japan) also disappointed the market. Sales in the region grew by only 2.2% at constant exchange rates, less than half the 5.84% growth analysts had expected, indicating a limited recovery. The simultaneous weakness in these two key regions was a primary reason for Hermes's overall sales growth falling short of targets.
Despite external pressures, Hermes has not slowed its strategic investments. The company recently inaugurated its 25th leather goods manufacturing plant, demonstrating its commitment to continuing capacity expansion amid geopolitical instability.
Hermes's business model, centered on managing scarcity, has historically shown strong resilience during industry downturns. Although it has not been entirely immune to the current challenges, it has demonstrated relative stability compared to peers. Nevertheless, this reflects that the entire luxury sector is now facing a period of broader pressure.
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