PARIS – Hermès International SCA (EPA:RMS) saw its shares plummet nearly 10% on Tuesday, as second-quarter results revealed a sharp slowdown in its key Asian market and a narrowing growth base that rattled investors despite strong margins.
The luxury group reported a 6.7% rise in second-quarter sales at constant currencies, broadly in line with expectations but only a modest improvement from the first quarter. The market reaction was severe, with shares falling 9.85% to €1,528.50 by mid-morning trading on Euronext Paris.
Regional Growth Imbalance
The primary concern was the geographic concentration of growth. Asia-Pacific excluding Japan, which accounts for 40% of quarterly sales at €1.65 billion, grew just 2.5% at constant currencies. This region includes Greater China, Hermès' most closely watched market. In stark contrast, the Americas and Japan, representing about 30% of sales, contributed an estimated 58% of the currency-adjusted growth.
The Americas saw a 13.7% sales increase to €846 million, while Japan grew 12.3% to €394 million. Europe excluding France rose 8.3% to €627 million, and France itself grew 6.2% to €407 million. Other regions, mainly the Middle East, contracted 2.4%.
This imbalance matters more than the headline growth rate. Hermès remains heavily exposed to a large Asian market that is generating limited incremental revenue, while smaller regions are shouldering the expansion.
Leather Goods Miss Consensus
Leather goods and saddlery, which produce almost half of group revenue, saw sales rise 10.2% during the quarter. However, this missed the 10.8% Visible Alpha consensus cited by Reuters, adding to investor disappointment.
Executive Chairman Axel Dumas offered no clear inflection point for China. “I see the Chinese market stabilizing, but I do not yet see a fundamental rebound,” he said.
Profit and Cash Flow Remain Strong
Despite the growth concerns, Hermès delivered robust profitability. First-half recurring operating income increased to €3.35 billion from €3.33 billion, with the margin easing only slightly to 41.0% from 41.4%. Adjusted free cash flow rose 18% to €2.18 billion, and restated net cash reached €12.93 billion after dividends and employee-related share purchases.
Currency movements masked much of the operating progress. First-half revenue rose 6.1% at constant rates but only 1.6% as reported, with exchange-rate movements cutting revenue by more than €360 million.
Market Contrasts with Peers
The market reaction contrasted sharply with peers. Kering SA (EPA:KER) rallied 11.58% after reporting improved Gucci trends, while LVMH Moët Hennessy Louis Vuitton SE (EPA:MC) traded only slightly lower. Hermès grew fastest among the three but received the harshest verdict, partly due to its valuation premium. At about 35.5 times trailing earnings, Hermès trades at a roughly 66% premium to LVMH's 21.4 times.
JPMorgan analysts noted that investors would focus on Hermès' “slower pace of reacceleration vs peers.”
Outlook and Risks
Hermès retained its medium-term goal of ambitious constant-currency sales growth but gave no numerical target. Third-quarter revenue is scheduled for October 22.
Key risks include a deeper China slowdown that would weaken the group's largest sales region, a stronger euro, or renewed Middle East disruption. The valuation premium leaves limited room for another narrow quarter.
