Hermes Positive on 2024 After Sales Growth -- 3rd Update

By Andrea Figueras

Hermes said it is moving into 2024 with confidence after the Birkin bag maker weathered a slowdown in the luxury sector with a surge in fourth-quarter sales, helped by its exposure to wealthy consumers.

The French luxury-handbag maker on Friday posted revenue of 3.36 billion euros ($3.62 billion) for the last three months of 2023, up 17.5% at constant exchange rates from the prior-year period, beating analysts' expectations of EUR3.26 billion, according to a Visible Alpha consensus.

At constant exchange rates, all regions reported double-digit revenue growth for the final quarter, while Asia was the largest contributor to group revenue with EUR1.72 billion.

The group's leather goods and saddlery business, which includes bags and small leather items and accounts for the majority of group revenue, saw a 10% increase in revenue to EUR1.37 billion.

At 0957 GMT, Hermes's shares rose 4% to EUR2,158.50, taking its gain over the last year to 27% and making it the best-performing European luxury stock in that period.

Hermes's results are the latest sign of the divide in the luxury industry between companies more reliant on status-seeking consumers and those that cater to wealthier customers. In an economic environment marked by inflation and high interest rates, aspirational consumers have tightened more their belts than high-end customers, who have helped the likes of Hermes, Richemont and Brunello Cucinelli sustain sales growth.

After a postpandemic boom on luxury spending came to an end last year, the market is expected to weaken further this year, with sales of luxury goods projected to grow at low to mid single percentage digits over 2024, according to estimates by Bain & Co. and Fondazione Altagamma, the trade association of Italian luxury goods manufacturers.

The slower-than-expected recovery from the pandemic in China--one of the largest markets for the sector--also contributed to the normalization of growth trends, as did a reduction in the number of Chinese tourists that travel abroad.

There was no slowdown for Hermes, Chief Executive Axel Dumas said on a conference call. The company has a strong local clientele in Europe, so the impact of tourist flows isn't as important for it as for some peers, he added.

The company's operating profit for 2023 increased to EUR5.65 billion from EUR4.7 billion in the previous year, while net profit jumped 28% to EUR4.31 billion.

"In the medium-term, despite the economic, geopolitical, and monetary uncertainties around the world, the group confirms an ambitious goal for revenue growth at constant exchange rates," it said.

For 2023, Hermes will propose a dividend of EUR15 a share, up from EUR13 a share paid out in the previous year, and an exceptional dividend of EUR10.00 a share.

Hermes's results come in an earnings season that has so far left a mixed bag for the luxury industry, with companies exposed to high-end consumers showing a better performance.

LVMH--considered a bellwether for the sector--reported 2023 sales above analysts' forecasts and said it enters 2024 with confidence. Richemont and Brunello Cucinelli benefited from a wealthier customer base, while peers such as Hugo Boss, Salvatore Ferragamo and Burberry posted results that analysts saw as disappointing.

As for Gucci owner Kering, sales continued to fall, while the company said it expects profit for 2024 to be hampered by planned investments in its fashion houses as the company seeks to reinvigorate its core brand at a time of slowing luxury spending.

Write to Andrea Figueras at [e-mail]

(END) Dow Jones Newswires

02-09-24 0543ET