Coveted handbags carry Hermès to strong growth to defy luxury slump
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Top-end French luxury company Hermès showed resilience amid a slowdown in the luxury sector, carried by high demand for its coveted handbags and strong growth in ready-to-wear fashion.
Hermès said on Friday that sales in the fourth quarter of 2023 grew 13 per cent to €3.36bn — ahead of forecasts from UBS — on top of already rapid growth in its biggest markets in North America and Asia during the same period.
“In 2023, Hermès has once again cultivated its singularity and achieved an outstanding performance in all métiers and across all regions against a high base,” said executive chair Axel Dumas.
Shares of the maker of Birkin bags — whose price tags start at about $10,000 and cannot simply be bought by walking into a shop — rose 4.3 per cent to an all-time high on Friday to €2,165.50 per share, giving Hermès a market capitalisation of €228.40bn. Most luxury groups’ shares have pared back from record highs since last spring as investors queried the sector’s future growth prospects after a multiyear boom, but Hermès has defied the trend and reached new peaks.
Sales for the year reached €13.43bn in 2023, up 16 per cent at current exchange rates compared with 2022, while net profit hit €4.31bn, up 28 per cent. The pace of growth for the year was slower than the 23 per cent increase in revenues achieved in 2022 as the luxury sector slowed from a multiyear pandemic era boom.
The group had strong growth across all geographic regions, defying concerns about economic pressures on US and Chinese buyers. “We are very confident about the Chinese market . . . and see no interruptions in US trends,” Dumas said.
Hermès plans to increase leather goods production, its biggest source of revenue, by between 6 and 7 per cent this year. The company’s limited production capacities mean that demand for its bags outstrips supply — reinforcing their exclusivity but frustrating clients at times.
Dumas also said the company planned to increase prices by as much as 9 per cent in 2024, up from 7 per cent in 2023, reflecting higher production costs and currency fluctuations.
Hermès has established itself as one of the most reliable performers in the luxury industry, with its super high-end positioning and carefully managed production helping it to outperform even in tougher markets.
The company’s 2023 results reinforce the trend that groups with more upscale positioning in the sector — including Brunello Cucinelli and LVMH as well as Hermès — are achieving a soft landing with resilient growth, compared with groups that have a more aspirational clientele, such as Burberry and Kering, which have struggled.
“Hermès powers on and beats both quarterly and full-year consensus,” said Luca Solca, analyst at Bernstein.
“Importantly leather goods is ahead and double digits in the quarter, defying the usual end of year lull . . . Hermès is yet another company to confirm reviving momentum of the American consumers, on the back of resurgent confidence and lower inflation,” he added.