Hermes’s Q3 revenue growth slows on weak Chinese demand

Hermes reported weaker third-quarter (Q3) revenue growth than anticipated on Thursday, as sales in its ready-to-wear and accessories division declined for the first time in years, due to weak demand in key market China. This marks the brand's weakest quarterly sales growth since early 2020, when it had to close boutiques globally due to the pandemic.

Hermes finance chief Eric du Halgouet attributed the decline to challenging conditions in the Chinese market, the company's single-largest market, but expressed confidence in the long-term prospects and pledged continued investment in the country. Despite the slowdown, sales at Hermes' leather goods division, which produces its iconic Birkin and Kelly bags, rose 10.8%, according to du Halgouet.

The decline in the ready-to-wear and accessories division, which accounts for over a quarter of quarterly sales, was primarily driven by sluggish Chinese demand for high-volume accessories. Du Halgouet acknowledged the softer Chinese demand but remained optimistic about the company's performance in the US, where it has recently opened stores in secondary locations.

Analysts have noted a growing concern that Hermes' historically high valuation, fueled by a decade of strong growth, may converge with industry averages as its expansion slows.