Hermes Sees Luxury Demand Recover From Pandemic Freeze

(Bloomberg) -- Hermes International returned to growth as consumers regained an appetite for products like Birkin bags after lockdowns earlier this year.

Revenue rose 6.9% on an adjusted basis to 1.8 billion euros ($2.1 billion) in the third quarter, beating estimates by 100 million euros. Hermes shares rose as much as 1.4% in Paris and traded near a record, having gained more than 20% this year.

The luxury industry is back in force, with LVMH shares also reaching a record recently after the Louis Vuitton owner’s unexpected rebound in fashion and leather sales. While Hermes said the impact of the Covid-19 epidemic remains difficult to assess for the full year, it repeated it has an “ambitious goal” for revenue growth in the medium-term.

Pent-up demand is helping Hermes after lockdowns in the first half left consumers with little recourse besides e-commerce to acquire the company’s pricey handbags and silk scarves. Hermes’s online shop now gets more revenue than its flagship store Faubourg Saint-Honore in Paris, Chief Financial Officer Eric du Halgouet told reporters on a call.

“There’s no cannibalization” between online and physical stores and 85% of online transactions are from new clients, he said. Hermes’s strategy is to expand the online offer progressively, except for iconic products like Birkin bags, he said.

“This performance reflects the strength of the brand, continued polarization between winners and losers and better insulation from a lower-than-industry-average exposure to tourist demand,” wrote Thomas Chauvet, an analyst at Citigroup. Management’s comments that October trends were so far in line with September were a positive signal, he added.

Revenue growth resumed in Asia-Pacific including Japan, fueled by Chinese shoppers. Europe and the Americas, meanwhile, saw revenue fall, but at a slower pace than in the second quarter. Europe is still suffering from the lack of tourists, although local stores in France except the flagships in Paris saw a “nice recovery,” du Halgouet said.

Hermes doesn’t intend to implement more price increases on its products this year after a hike at the start of 2020, he said. Management will review its pricing strategy for next year in the next few months.

Demand for Hermes’s famous silk scarves, known as “carré,” and perfumes has been negatively impacted by their over-exposure to travel retail stores, half of which remain closed, du Halgouet said. Revenue in the third quarter for those two categories fell 21% and 9.9%, respectively.

Hermes looks set to “secure a fourth-quarter revenue uplift,” Deborah Aitken, an analyst at Bloomberg Intelligence, wrote in a note. “The recovery’s quality should be a green light for the luxury sector too.”

Gucci-owner Kering SA is scheduled to publish its third-quarter trading update later on Thursday.

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