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Hermès falls as valuation woes eclipse birkin maker’s sales gain
Shares of the maker of the iconic Birkin bag, which have far outperformed its rivals, tumbled the most since May.
Hermès shares fell as much as 4.7% as worries about the valuation of one of the luxury industry’s stars eclipsed sales growth that showed resilience during the sector’s downturn.
Shares of the maker of the iconic Birkin bag, which have far outperformed its rivals, tumbled the most since May, bringing their performance this year closer to the average of the industry. Before Wednesday, they had been up 2.4% compared with a more than 25% slump in rival LVMH’s shares.
“The valuation premium looks stretched” particularly “at a time when the luxury sector remains out of favor,” Citigroup analyst Thomas Chauvet wrote in a note.
The stock slump came even after Hermès International SCA sales rose 9% in the second quarter as wealthy shoppers continued to snap up its pricey handbags, showing the company weathering a downturn in demand for high-end goods that has hit its luxury peers. Analysts had expected a gain of 8.9%.
The French brand’s business model, which keeps coveted products like the Birkin and Kelly bags in short supply with finely calibrated production levels, has helped it navigate the luxury slump better than rivals like LVMH Moët Hennessy Louis Vuitton SE and Gucci owner Kering SA. Earlier this month, the original Birkin fetched €8.58 million ($9.91 million) at an auction in Paris.
In spite of the geopolitical turmoil of a trade war and slowing growth, Executive Chairman Axel Dumas is keeping the outlook for the company unchanged. The executive told reporters on a call that Hermès will hold off on raising prices further in the US while it waits for details of the 15% tariffs announced recently on goods coming from the European Union. Hermès increased product prices in the US by around 5% in May, he said.
Hermès’ sales growth in the latest quarter came even as luxury demand in China, a crucial market for the company, has plummeted as the country clamps down on flashy living. In contrast, LVMH’s key unit — which includes Louis Vuitton, Christian Dior Couture and Celine — saw quarterly organic sales drop 9%. On Tuesday, Kering announced a 25% second-quarter slump in revenue at Gucci, its largest brand.
Hermès has a bigger exposure to the region that includes China, with the area accounting for about 45% of total revenue compared with 28% for LVMH. The company’s quarterly sales in the region rose 5.2%, beating estimates. Dumas said traffic in stores in China remains weak but the average consumer baskets are higher.
In the first of this year, Hermès’ recurring operating income rose to €3.33 billion, beating estimates.
