Hermes said it was sticking to its medium-term revenue growth guidance despite geopolitical headwinds and monetary uncertainties. The company has ramped up investments in its manufacturing capacity, marketing and IT while expanding its headcount and offering staff salary increases and a free share plan.
Hermes has consistently stood out against its big French rivals including Louis Vuitton and Dior owner LVMH, which suffered from the Chinese slowdown in the third quarter, and Kering, which is struggling to implement a turnaround at Gucci.
Citi said in a note that “[Hermes’] valuation premium seems justified by a more defensive business model with relatively good visibility on revenue growth, margins, cash flow and returns profile, particularly at a time when the luxury sector remains out of favour”.
The current 40 per cent earnings before tax and interest margin appeared to be a good “proxy” for the future, it added.
LVMH and Kering, meanwhile, also noted that sales growth in Japan had slowed, as a result of a strong yen that has put off foreign shoppers there — another trend bucked by Hermès.
“Unlike peers, Hermes is mostly exposed to domestic consumers in Japan and was thus less impacted by the slowdown of Chinese tourism,” analysts at Barclays said in a note.
Kering warned on Wednesday (Oct 23) its full-year operating profit would almost halve from last year, one in a series of profit warnings throughout 2024 that have also knocked the group’s shares.
Gucci sales fell 25 per cent like-for-like in the third quarter, and Kering gave no forecasts for 2025 on when an improvement might materialise significantly. Kering shares were up 1.6 per cent in early Paris trading on Thusday.
“The sector, and Kering above all with it, is torn between two powerful forces: on the one hand, we see — like last night for Kering — weak current trading,” said analyst Luca Solca at Bernstein. “On the other hand, the actions of the Fed and Chinese authorities anticipate a more supportive environment.”
However, he warned that there were “company and brand-specific issues Kering is confronting”.
Silvia Sciorilli Borrelli in Milan and Sarah White in Paris © 2024 The Financial Times
This article first appeared in The Financial Times
