Daily Management Review

Hermes Surpasses Expectations Due To Strong Growth In The US And China


Hermes Surpasses Expectations Due To Strong Growth In The US And China
Hermes, the maker of the Birkin bag, claimed that wealthy Chinese consumers bought its goods in the fourth quarter even though the rest of the luxury market was suffering from an increase in COVID infections, enabling it to surpass sales and margin expectations.
According to Executive Chairman Axel Dumas on Friday, Hermes also experienced strong demand from Chinese customers for a variety of products during the Lunar New Year. He also stated that the company was optimistic about the year 2023.
Sales were also boosted by brisk business in the United States, where the company opened a large store on Madison Avenue in New York in September.
Luxury brands in Europe have benefited from a robust post-pandemic recovery as consumers treated themselves to designer label clothing by using their savings during lockdowns.
However, Dumas claimed that Hermes "continued to see strong desirability in China" despite the fact that much of the industry suffered in China as COVID infections increased at the end of last year.
"We saw things going very strongly in China with double-digit growth .... including in the fourth quarter," he said. He did not give a detailed figure.
According to a Visible Alpha consensus, worldwide sales for the three months ending in December increased by 22.9% to 2.99 billion euros ($3.2 billion), exceeding analyst expectations for 17% growth at constant rates.
According to the company, annual recurring operating profitability increased to a record 40.5% from 39.3% in 2021.
"Hermes has ploughed through the COVID-19 related issues in 4Q22, and produced a very solid beat to consensus," Bernstein analyst Luca Solca said.
Sales increased by 40.8% in the US, outpacing some competitors who saw a decline in sales as business moved to Europe and travelers took advantage of the strong dollar.
Hermes announced that it would give all of its employees a 4,000 euro bonus this year in addition to proposing a dividend of 13 euros per share at its upcoming general meeting on April 20.
The shares were down about 1% in the very first trade of the day. To date this year, they are up more than 20%.
"The stock has been very strong YTD (year to date), and expectations were high into today, but still the operational outperformance should warrant further gains this morning," J.P. Morgan analysts wrote in a note.
The company cited rising labour costs as the reason behind its recent price hikes of around 7%, implemented in January, after price hikes of around 4% in 2022.
Price increases over the past few years have maintained the exclusivity of luxury brands like Chanel and LVMH's Louis Vuitton, while Hermes has only made minor adjustments.
In comparison to Hermes' price increases of 1% and 2.1% in those same years, according to UBS, Louis Vuitton increased prices by 9.6% in 2020 and 3.7% in 2022.
Hermes claimed that over the last three years, it has created 4,300 jobs, 2,900 of which were in France, and that it will continue to grow this year.