Hermes’s Q3 revenue growth slows on weak Chinese demand

Hermes reported weaker third-quarter (Q3) revenue growth than anticipated, citing sluggish demand in its ready-to-wear and accessories division, particularly in China. The French luxury brand's ready-to-wear sales, which comprise over a quarter of its quarterly revenue, saw a 2% decline compared to the previous year. This decline was mainly attributed to weak Chinese demand for high-volume accessories, following earlier downbeat quarterly sales update from LVMH.

Hermes' revenue in the quarter increased by 4.3% year-on-year to €4.10 billion (US$4.6 billion), slightly below the analysts' expected growth of 5.2%. The company's leather goods division, known for its Birkin and Kelly handbags, experienced a 10.8% increase in sales. However, the Q3 results marked Hermes' weakest quarterly sales growth rate since early 2020, when the brand had to temporarily close boutiques worldwide due to the pandemic.

Despite the slowdown, Hermes remains optimistic about its prospects in the US, where it has recently opened new stores in secondary locations. The company also pledged to enhance security measures following recent unrest and looting at one of its stores in Marseille. Analysts have raised concerns about Hermes' historically high valuation, which could approach industry averages as its expansion pace slows.

The brand's Birkin handbags have become more accessible on the second-hand market, potentially impacting their appeal and scarcity-driven business model.