By Mimosa Spencer and Tassilo Hummel PARIS (Reuters) -Birkin bag maker Hermes pointed to glimmers of improved demand in China as it reported quarterly sales slightly below expectations, dragging its shares down by 4% on Wednesday. The tentatively optimistic comments on Chinese demand, which accounts for roughly a third of global luxury sales, follow similar […]
Business
Hermes ‘very slight’ China improvement in third quarter fails to excite
Audio By Carbonatix
By Mimosa Spencer and Tassilo Hummel
PARIS (Reuters) -Birkin bag maker Hermes pointed to glimmers of improved demand in China as it reported quarterly sales slightly below expectations, dragging its shares down by 4% on Wednesday.
The tentatively optimistic comments on Chinese demand, which accounts for roughly a third of global luxury sales, follow similar signals from rivals LVMH and L’Oreal.
“One could note a very slight improvement in the third quarter,” finance chief Eric de Halgouet told journalists on a call, citing stabilising real estate prices in large cities and positive stock market trends.
LVMH’s sales report last week prompted an $80 billion rally in luxury shares on hopes the industry had turned the corner in China, but analysts have cautioned it was early to call an end to the industry’s two-year slump.
In the United States, Hermes store foot traffic increased, with even growth across all regions, he said, adding that Hermes would continue to invest in the country, where it just opened a new store in Nashville.
The brand has not increased prices in the country this year after its additional 5% May hike aimed at passing on the burden of tariffs to its clients, de Halgouet said.
GROWTH FALLS SLIGHTLY SHORT OF FORECASTS
Sales for the three months to the end of September came to 3.88 billion euros ($4.52 billion), up 9.6%, lifted by growth in the United States, slightly below analyst expectations for 10% growth, according to a Visible Alpha consensus cited by UBS.
Hermes shares were down 4.2% by 0832 GMT following the trading update, as the company’s tight grip on production, which has shielded it from a wider downtrend, is set to limit its growth pace when consumer appetite picks up more broadly.
Sales of leather goods, including its classic Birkin, Constance and Kelly handbags, rose 13.3%, slightly below expectations, with de Halgouet pointing to low available inventory that he said will be ramped up again before the Christmas season and the Chinese New Year.
Jeffries analysts said some investors are finding the company’s traditional consistency “unexciting” compared to turnaround stories at other players.
Shares at Hermes, which briefly overtook LVMH as the world’s biggest luxury group in terms of market capitalisation in April this year, have lagged rivals in the past three months as investors shift their bets to improving performance at LVMH, up 31%, and turnaround efforts at Kering, up 65%.
Hermes, which raised prices less than rivals like Chanel and Dior during the post-pandemic boom, this year increased them by 7% globally.
Sales of clothing, jewellery and silk scarves, products seen as more accessible to a wider clientele than the exclusive handbags, ticked up in the third quarter.
(Reporting by Mimosa Spencer and Tassilo Hummel, Editing by Louise Heavens)