Hermès Third-Quarter Revenues Beat Estimates

Hermès has been able to increase its sales in the quarter despite the environment of slowing demand for luxury goods.

Leeson. 10/11/2014
Iconic Hermès box
Iconic Hermès box
Iconic Hermès box. Click on the image for more information

Hermès, the French luxury-goods maker, has beaten expectations in the third quarter due to increased demand for its leather products and the business improvement in the US and Japan. It has also maintained its growth target this year, something really appreciated by the analysts.

Contrary to what has happened to other industry giants, like LVMH and Kering, Hermès has been able to increase its sales in the quarter despite the environment of slowing demand for luxury goods. According to the company, the lower supply of its products and the high prices have helped customers to go to its stores looking for exclusivity

Sales rose 11% $1.2 billion. The company reaffirmed its objective of a 10% increase in revenue in the year, but has also recognized that the weakness of some currencies may cause a slight reduction in its operating margin.

Bakin Bag, Hermès

The results evolution leaves several highlights. First, the slowdown in China demand is a fact. This confirms the previous comments from the industry giants, who warned that the market which has been the engine of the industry is showing signs of weakness. Hong Kong protests have even exacerbated this weakness. It also shows that demand from Japan is recovering from the terrible slump in the previous quarter, led by higher taxes. Finally, it shows that good performance of the US market is continuing.

Summarizing, it is clear that Hermès keeps itself out of the industry trend. As other companies, it clearly notes the slower growth in luxury demand (according to consultancy Bain & Co. this will be the lowest growth since at least 2009), Hermès continues to rely on its exclusivity and brand positioning as key aspects to maintain its healthy growth rates.

In any case, its stock price now stands apart from the evolution of its business as it is much more impacted by the final settlement of the litigation with LVMH. LVMH has announced that on Dec. 17 will distribute most of its Hermès stake to its own shareholders. That could generate a major shares placement in the market, which can certainly have a negative effect on the stock.

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