Hermès sales rise as demand for luxury goods defies price hikes

Bloomberg
Bloomberg

Summary

  • French maker of $10,000 handbags says sales rose 24% at a constant exchange rate during the last quarter

Inflation and other economic headwinds aren’t cooling demand for high-priced handbags and other luxury baubles.

On Thursday, Hermès International SCA, the French maker of $10,000 handbags, said it expects to increase its prices by around 5% to 10% after reporting sales that easily topped analyst estimates.

Sales at constant exchange rates rose 24% to 3.14 billion euros, equivalent to $3.07 billion, in the July-September period compared with a year earlier. LVMH Moët Hennessy Louis Vuitton SE, the industry’s biggest company, last week also posted a higher-than-expected rise in sales, boosted in part by U.S. tourists spending freely in Paris and other European capitals, and Covid-19-related disruptions easing in China.

“For the moment, we don’t see any sign of a slowdown in any of our markets," Hermès Chief Financial Officer Eric du Halgouët told reporters.

He said Hermès had raised prices already by about 4% in 2022. The price increases—which traditionally take place in January—are far more than the 1.5% to 2% the company averaged in previous years. Hermès has been slower to increase prices since the pandemic than some of its peers. Chanel SA raised prices on its Classic Flap bags three times in 2021 and made another price increase in January on different styles, including Coco Handle and Business Affinity bags, which then cost 8% to 12% more.

Hermès shares were up 4% in early European trading before falling back slightly.

As many retailers and consumer goods companies struggle, Hermès and its luxury goods peers have bucked the trend, riding a postpandemic boom that so far has shown little sign of easing. While rising inflation, supply-chain issues and the war in Ukraine have caused problems for mainstream retailers, wealthy consumers continue to spend freely.

“We end up selling to affluent people who have a behavior on their own, which isn’t necessarily totally aligned with economics or GDPs ups and downs," said LVMH CFO Jean-Jacques Guiony. “Our client base reacts to different stimuli," he said, like shocks to real-estate value and the stock market.

Global economic growth is likely to slow next year more than previously expected, the International Monetary Fund said last week. It warned living conditions will worsen as soaring inflation erodes people’s spending power around the world.

Both Hermès and LVMH shares have dropped by around 15% this year, in part based on concerns about the Chinese market. Many analysts also believe that luxury goods demand will taper at some stage following the postpandemic boom.

“The luxury industry isn’t immune to recession or to shocks. We’ve seen that in the past," Mr. Guiony said. “We’ve also seen in the past that when it happens, it usually doesn’t last very long."

Hermès, which limits production to maintain the scarcity of its goods, is considered a bellwether for high-end spending because its bags are some of the most expensive in the industry. It also has one of the tightest ad budgets in the industry, spending just 5% of its sales on marketing. Most of this goes on live events rather than media campaigns.

Hermès said sales of the company’s leather goods and saddlery unit, its biggest, increased by 13% in the third quarter.

In France and the rest of Europe, performance was bolstered by the summer tourist season, the company said. Sales in the Americas continued to grow strongly, helped in part by new store openings in New York City and in Austin, Texas.

Sales in the Asia-Pacific region, excluding Japan, rose by a third as Covid-related disruptions eased in China.

Bernstein analyst Luca Solca said the Hermès numbers added to the data “suggesting that high-end global luxury goods demand has yet to normalize."

Hermès doesn’t report profitability figures for the third quarter. Gucci owner Kering SA reports its sales later on Thursday.

This story has been published from a wire agency feed without modifications to the text

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