By Andrea Figueras
Birkin bag maker Hermes sales grew across its regions in the first three months of the year, helped by its wealthier clients during a quarter that was expected to be challenging for the luxury sector as a whole.
The French luxury handbag maker said Thursday that sales for the first quarter jumped 17% on year at constant currency to 3.805 billion euros ($4.07 billion). The result beat analysts' forecasts of EUR3.68 billion, according to a poll of estimates compiled by Visible Alpha.
At current exchange rates, revenue grew 13%. Hermes's results are the latest sign of polarization trends in the industry at a time when big European luxury names grapple with a slowdown in sales growth.
After a postpandemic boom in luxury spending came to an end last year, the sector was expected to have a sluggish start to 2024. However, the trend differs between companies depending on the consumers they cater to most, with names that attract wealthier consumers performing better.
LVMH Moet Hennessy Louis Vuitton--considered a bellwether for the sector--posted a decline in quarterly sales in reported terms, but some analysts said the result seemed reassuring in a context of a general growth normalization.
Brunello Cucinelli backed its targets for 2024 after it reported an increase in first-quarter revenue with positive results in all regions. On Wednesday, Prada said it had a positive start to the year, while Moncler posted sales that beat analysts' expectations.
As for Hermes, some analysts pointed out that it benefits from strong pricing power as well as a high-end clientele, which tends to be more resilient in times of macroeconomic slowdowns.
Companies that cater to less wealthy consumers face a tougher environment. This is the case of Gucci owner Kering, which posted a decline in sales, as it seeks to revamp it core brand.
At constant currency, Hermes posted double-digit growth in all its markets, including Asia. Its positive performance in the region also contrasts with that of other peers such as Kering as some of Europe's largest luxury groups are struggling in a stalling Chinese economy.
The slower-than-expected recovery from the pandemic in the country--one of the largest markets for the sector--also contributed to the normalization of growth trends, as did a reduction in the number of Chinese tourists that travel abroad.
Despite growth in Asia during the quarter, the company noted that store traffic was softer in Greater China after the Chinese New Year, which could be seen as a negative, Citi analysts Thomas Chauvet and Lorenzo Bracco wore in a note to clients.
At 1302 GMT shares in Hermes were down 4.8% at EUR2,240. Peers LVMH and Moncler traded 3% lower, while shares in Brunello Cucinelli and Richemont fell by more than 2%. Shares in Salvatore Ferragamo and Hugo Boss dropped by more than 1%.
Hermes's cautious commentary about store traffic in China might have disappointed investors, Bernstein analyst Luca Solca told Dow Jones Newswires. "Luxury stocks were already up quite a bit," Solca said, noting that since the start of the year, shares in Hermes have risen around 17%. "The good updates were already in the price."
Bank of America analysts expected Chinese demand to be the biggest swing factor between the best and worst performers in the sector.
In the medium term, Hermes continues to expect revenue growth at constant exchange rates, but flagged global economic, geopolitical and monetary uncertainties.
Write to Andrea Figueras at andrea.figueras@wsj.com
(END) Dow Jones Newswires
04-25-24 0939ET
