Hermes results reiterate what we already know: for high-end luxury, China is holding up just fine
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Hermes results reiterate what we already know: for high-end luxury, China is holding up just fine

French fashion house Hermes, one of the highest- of high-end brands whose handbags can often be found at auctions retailing for hundreds of thousands of dollars (US), reported first quarter earnings at the end of last week. And investors liked what they saw. The company, renowned for its leather goods, continued two notable trends that are emerging this earnings season: first, international luxury brands are outperforming; and second, for luxury’s most prestigious names, China continues to be a massive driver of growth.

Hermes’ share price has appreciated by almost 30% year to date

30 04 hermes

Source: Yahoo Finance

Hermes said that consolidated revenue for the first quarter of 2019 came in at 1.61 billion euros – a 16% increase at current exchange rates, and a 12% increase at constant exchange rates, against the first quarter of 2018. Asia was an outperformer when it came to sales growth. The continent, sans Japan, saw sales rise by 17% year on year, which Hermes notes was “driven” by incredibly strong performance from mainland China.

That’s a figure that defies the “common wisdom” of a luxury slowdown in the country, even as investors continue to fret about possible warning signs in the economy. Luxury’s high-end, it seems, has outsized protection against these woes – and that shouldn’t be surprising: the people who queue up to buy Hermes’ iconic Birkin bags tend not to be the ones who feel the pinch when the going gets tough.

This development was half expected by the market, since LVMH – itself the owner of multiple high-end brands, as well as a bellwether for the sector – told a similar story at its own recent quarterly earnings. Nonetheless, China is now so important to the luxury sector that Axel Dumas, Hermes’ executive chairman, was eager to single it out for praise, quelling investors’ fears. In a statement, he said: “Driven by the success of its collections among all its customers, Hermès achieved an acceleration of its sales over the first quarter, which shows the continuation of a dynamic trend, particularly in China.”

In the west, business stayed strong: America saw sales rise 10% (the same as Japan, which was also fighting against very strong comparables), and Europe saw growth of 9.5%. Both these figures are reported on a year on year basis.

Disclosure

Dominion holds Hermes International in its Global Trends Luxury Fund.


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