PARIS — Muscling past concerns of a patchy return to global luxury demand, Hermès reported that first-quarter revenue jumped 44 percent, at constant rates, beating expectations and fueling optimism for leaders in the sector.
“This is a confirmation of a buoyant luxury goods demand environment worldwide, and a sharp V-shaped exit out of the COVID-19 pandemic,” Luca Solca and Maria Meita of Bernstein said in a research note.
Following recent reports from luxury peers LVMH Moët Hennessy Louis Vuitton and Kering, as well as an uptick in exports of Swiss watches in March, the figures add to evidence the luxury sector is on the upswing.
“Louis Vuitton, Dior and Hermès had a phenomenal quarter,” said Mario Ortelli, managing partner of Ortelli & Co., a strategic M&A advisory firm focused on luxury, predicting the figures would prompt investors to raise their expectations for the year.
Comparison bases are easier right now, as Asia was feeling the full brunt of the coronavirus crisis this season last year. But even as the second and third quarters bring tougher comparisons in Asia, they will become less challenging in Europe and the Americas where business declined at a later stage last year, noted Ortelli, recalling how the pandemic swept through regions at different times.
Noting how the crisis has served to accelerate trends, Ortelli cautioned that top-performing labels were set to widen their lead.
“The performance divide between top performers, top of mind brands and the rest will just continue to increase over time: winners take all,” he said.
The rise of digital and importance of sustainability are also key trends, he added, noting that consumers would seek to buy less but buy better.
“Instead of buying 10 T-shirts, because I have less occasions to wear them, I buy two that are memorable,” he said.
Famous for the staying power of its ever-popular Birkin bags, which fetch hefty sums on secondary markets, the first-quarter performance of Hermès was lifted by a strong showing in China and a brisk performance in the Americas region.
“In a still unstable context, our strong sales growth confirms the robustness of our sustainable artisanal model and the desirability of our collections to our customers all over the world,” said Hermès chairman and chief executive officer Axel Dumas.
Revenue came to 2.08 billion euros, a 38.4 percent rise compared to the previous year, or 32.8 percent compared to the first quarter in 2019 — in a comparison with pre-pandemic figures — lifted by a strong performance of its ready-to-wear activity. That division, which includes apparel for men and women as well as accessories like shoes and belts, grew 50.9 percent at constant rates, while its largest division, leather goods and saddlery — including handbags — rose 33.6 percent. Watches, which performed strongly last year, rose 96.5 percent, while silk and textiles rose 33.9 percent.
At constant rates, the firm posted 74.3 percent growth in Asia, with activity in China that the company characterized as “highly dynamic,” while business was “sustained” in South Korea, Thailand, Singapore and Australia. In Europe, sales were down 4.4 percent due to the absence of international visitors, as well as ongoing coronavirus lockdowns. The firm reported 22.6 percent growth in the Americas, meanwhile, marking an upturn in business there.
Hermès has been reinforcing its own store network, which posted 41 percent growth compared to 2019 figures, as digital sales rise and as business in wholesale channels, which was down 2 percent, suffers from the lack of international travel.
While the impacts of the coronavirus pandemic evolve on a daily basis and are difficult to assess, the company cited its integrated craftsmanship model, balanced distribution network and customer loyalty as reasons for confidence in the future.
The company continues to increase leather-goods production capacity, with new sites opening in Guyenne and Montereau in France this year.
The group maintained its “ambitious goal for revenue growth” in the medium term, despite economic, geopolitical and monetary uncertainties.
LVMH last week reported a 30 percent rise in sales in organic terms over the first quarter while Kering’s revenues bounced back above pre-pandemic levels, with its star label Gucci recording 24.6 percent growth in organic terms.
Swiss watch exports in March grew 37.2 percent to 1.9 billion Swiss francs, or $2.07 billion, compared to the previous year, when exports dropped 21.7 percent as coronavirus lockdowns swept through the market, according to the Federation of the Swiss Watch Industry. Compared to March 2019, however, exports grew 7.4 percent. Mainland China was the main consumer of Swiss watches over the month, handily leading other key markets like the U.S., Hong Kong, Japan and Singapore and the U.K.
For this year, Bain & Co. has forecast growth in luxury goods overall of between 10 percent and 12 percent, or 17 percent to 19 percent depending on macroeconomic conditions, the evolution of COVID-19 and the speed of return to travel globally, as well as the resilience and confidence of local customers. The firm estimates that sales of personal luxury goods fell by 23 percent in 2020, the sharpest drop on record.
Hermès shares closed up 2.05 percent, or 21 euros higher, on Thursday to close at 1,047.50 euros a share, making it the third-biggest company on the Paris CAC 40 index in terms of market capitalization, below the much larger LVMH and L’Oréal — and above drugs-maker Sanofi.