Hermès shines in Q4 as it defies luxury downturn

Ultra-luxury label Hermès released its Q4 and full-year results on Friday and they clearly showed that affluent shoppers are back in a spending mood as quarterly sales rose as much as 18% at constant exchange rates (CER).

The company has been more resilient than some during the general luxury slowdown, perhaps unsurprising given its very-high-end positioning and clientele who are less affected by economic woes than the customers of some other luxury brands.

“We are celebrating an excellent year, in a tougher environment,” Axel Dumas, executive chairman, said on a conference call. And that use of the ‘excellent’ seems perfectly justified given the Q4 sales of €3.96 billion and —importantly — its fastest growth being see in previously more sluggish markets such as the Americas and Japan.

Analysts had expected just a 10% Q4 rise but with the giant leather goods and saddlery division (making up almost half of group revenues) rising 21.5% CER to €1.669 billion, it was always likely the business would smash through those expectations.

RTW and accessories increased by 17.4% to €1.108 billion. Other divisions are much smaller but all of them managed to increase, with silk and textiles up 7.3%, perfume and beauty up 16.9% and watches up 2.6% in the quarter.

Regionally, sales in its domestic market France rose 11.8% CER with the rest of Europe up 20.7%. As mentioned, Japan was strong with a 22.4% increase and the rest of Asia Pacific was up 8.9%. The Americas rose 22.3% with ‘other’ markets (primarily the Middle East) up a massive 123.2%.

The progress made in the fourth quarter outstripped that of the year was a whole but having said that, the rest of the year still managed to turn in numbers that some others in the luxury sector would envy.

Annual revenue amounted to €15.2 billion (up 15% CER and 13% at current exchange rates). Recurring operating income reached €6.2 billion from €5.6 billion, representing 40.5% of sales. Adjusted free cash flow amounted to €3.8 billion, up by 18%. Net profit for the year was €4.603 billion, an increase from the €4.311 billion of the previous year.

As with the fourth quarter, all markets grew during the year with the increases ranging from 7.4% in Asia Pacific excluding Japan up to a more-than-doubling in the Middle East.

And by product category for the full year the leather goods division increased 18.3% CER while RTW rose 15.4%. Silk and textiles and perfume and beauty also increased strongly although there was one product category that struggled during the year as a whole – watches were down 4.2. But as mentioned, they clearly recovered in the fourth quarter.

As well as the enduring appeal of the brand, the company was helped by important new stores either being opened or reopened following renovation; by the loyalty of local clients; and by “dynamic” tourist flows. An increase in production capacity for in-demand products was also significant and more new workshops are planned.

As for the outlook, the company said that in the medium term, despite the economic, geopolitical and monetary uncertainties around the world, it “confirms an ambitious goal for revenue growth at constant exchange rates. In a more complex economic and geopolitical context, the group has moved into 2025 with confidence, thanks to the highly integrated artisanal model, the balanced distribution network, the creativity of collections and the loyalty of clients”.