Hermes reported third-quarter results that fell short of market expectations, with sales in Asia-Pacific excluding Japan showing zero growth at constant exchange rates, reflecting the impact of shrinking consumer spending on the top luxury group. Dragged down by this, the company's shares dropped as much as 7% during intraday trading.
Hermes' third-quarter revenue came in at 4.10 billion euros, up 4.3% at constant exchange rates, both below analysts' expectations of 4.13 billion euros and 5.29% growth. Among this, the Asia-Pacific region excluding Japan, which contributes about 42% of the group's total revenue, posted zero growth at constant exchange rates, significantly trailing market expectations of 1.55% growth. Chief Financial Officer Eric du Halgouet stated that the macroeconomic environment in Asia-Pacific excluding Japan continues to face pressure, which is weakening the willingness of high-net-worth clients to spend.
The above results disappointed investors. Jefferies analyst James Grzinic wrote in a research note that this result "could make it an extremely painful day for the market." Hermes International SA (ASX: HESAY) shares have fallen about 40% year-to-date, and if the full-year decline remains at this level, it would mark the worst annual performance since the company's listing in 1993.
Asia-Pacific Under Pressure, Japan Sales Momentum Remains Strong
Asia-Pacific excluding Japan is Hermes' largest single market, with third-quarter revenue of 1.650 billion euros, flat compared to the same period last year at constant exchange rates. Hermes noted in its announcement that robust performance in the South Korean market provided some support to the overall regional performance.
In contrast, the Japanese market grew 9.6% at constant exchange rates in the third quarter, with revenue reaching 402 million euros, driven by continued spending from local clientele, maintaining strong momentum.
Looking at cumulative data for the first three quarters, Asia-Pacific excluding Japan recorded revenue of 5.182 billion euros, up only 1.6% at constant exchange rates, significantly lagging behind other regions.
Americas and Europe Become Growth Engines
Against the backdrop of stalling growth in Asia-Pacific, the Americas and Europe excluding France became the group's core growth drivers. Third-quarter revenue in the Americas was 791 million euros, up 8.8% at constant exchange rates, with strong performance recorded across countries including the United States and Brazil and across all product categories. During the period, Hermes reopened a renovated store in Santiago, opened new stores in Chicago and Williamsburg in New York, and also opened a new store in Rio de Janeiro.
Europe excluding France grew 9.5% at constant exchange rates in the third quarter, with Southern European markets performing particularly well, while the UK market also achieved strong growth driven by the opening of a new flagship store at 166 New Bond Street in London. Domestic France grew 3.6%, with seaside stores and local clientele providing stable support.
Hermes also faces additional disruption from riots in France. Eric du Halgouet stated that Hermes' store in Marseille was looted and "will not reopen in the short term." Store windows in Nantes, Lyon, and Avenue George V in Paris were damaged during the riots, and the company has since strengthened security measures.
"It is too early to assess whether this incident will affect foreign tourist spending in the coming weeks," he added. This uncertainty adds a variable to the short-term outlook for the European market.
Leather Goods Business Shines, Multiple Categories Face Pressure
By category, leather goods and saddlery was the group's biggest highlight in the third quarter. This business generated third-quarter revenue of 1.912 billion euros, up 10.8% at constant exchange rates, exceeding market expectations of 10%, with both new and classic bag models maintaining strong demand. The group continues to expand production, opening its 25th leather workshop in Loupes, Gironde in April this year, and announced plans to open three additional workshops in France in the coming years.
In contrast, ready-to-wear and accessories declined 2.0% at constant exchange rates in the third quarter, the watch business fell 6.0%, and although fragrance and beauty grew 7.5% year-over-year, cumulative performance for the first three quarters remained slightly negative.
Consolidated revenue for the first three quarters was 12.260 billion euros, up 5.5% at constant exchange rates. Executive Chairman Axel Dumas stated that Hermes continues to achieve profitable growth in a complex environment and will continue to advance its development strategy with a long-term perspective.
Outlook: Medium-Term Targets Unchanged, Uncertainty Persists
Hermes reiterated that despite ongoing global economic, geopolitical, and exchange rate uncertainties, the group maintains its medium-term ambition of achieving ambitious revenue growth at constant exchange rates. Currency fluctuations have already had a negative impact of approximately 310 million euros on first three-quarter revenue.
Competitor LVMH also reported quarterly sales data last week that disappointed the market. The consecutive performance of the two luxury giants has further intensified market concerns about the recovery prospects for high-end consumption in Asia-Pacific.
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