Hermès adds to signs of luxury goods recovery
Third-quarter sales of €1.8bn driven by strong demand in Asia
Hermès returned to sales growth in the third quarter despite the pandemic, as strong demand in Asia for its luxury leather goods and fashion offset continued weakness in Europe because of the lack of tourists.
Sales hit €1.8bn in the quarter, up 6.9 per cent on a comparable basis, ahead of analysts’ expectations for a 1 per cent decline. Leather goods, its largest division, rose 7.8 per cent on a comparable basis to reach €879.8m, beating the 2 per cent increase expected.
The results show how the biggest players in luxury goods have begun to show signs of a tentative recovery after lockdowns and store closures paralysed the industry earlier this year. Sector leader LVMH last week reported forecast-beating 12 per cent comparable sales growth at its largest division, leather goods and fashion. Kering will publish its trading update after the market closes on Thursday.
Nevertheless, the sector is grappling with its worst downturn in decades as the pandemic prompts wealthy consumers to delay purchases and hampers usually free-spending Chinese tourists from travelling to Europe. Analysts have predicted that sales will fall as much as 30 per cent this year and take up to three years to recover.
Hermès on Thursday declined to give financial predictions for the rest of the year given the uncertainty over the pandemic. Eric du Halgouët, chief financial officer, said the recent resurgence of coronavirus cases in Europe and the US did not affect sales in the first half of October, but it was too early to tell if there would be a drag from new curfews and lockdowns.
The family-controlled group, known for its Birkin bags and colourful silk scarves, said sales in stores had improved and reported strong growth in its ecommerce operation, which now generates more revenue than any single one of its stores.
Hermès shares have risen nearly 20 per cent this year, outperforming LVMH’s 3 per cent rise and Kering’s 1 per cent fall.
Asked whether the group would restart buying back its shares, Mr du Halgouët said: “We stopped share buybacks this summer and for now we do not expect to start them again.”
Thomas Chauvet, analyst at Citigroup, said in a note that Hermès was in a good position to weather the pandemic because of “the strength of the brand, continued polarisation between winners and losers, and better insulation from a lower than industry average exposure to tourist demand”.
Luca Solca, analyst at Bernstein, said the good sales performances at Hermès and LVMH showed how the sector’s biggest companies were faring better than smaller ones.
“Global luxury goods demand has materially revived over the summer, never mind the fact that intercontinental travel is still virtually non-existent. Best-in-class companies are already producing year-on-year growth in the third quarter, much ahead of start of Covid-19 industry estimates,” he said.