Company Reports

Hermès delivered 6.7% growth in the second quarter at constant exchange rates, a slight acceleration from the first quarter (5.6% growth). Currencies weighed on profits, as operating margin dropped by 40 basis points. Markets were disappointed, sending shares 10% lower.

We believe wide-moat Hermès International has carved out a unique niche in the luxury goods industry, which will provide it with continuing superior returns on capital. Hermes’ iconic leather bag styles (part of the EUR 7 billion leather goods segment) are in limited supply, supporting the brand’s exclusivity perception and providing the company with demand visibility and significant pricing power. Hermès Birkin and Kelly bags are sold in secondary markets and auctions for significantly higher than the initial purchase prices—an impressive feat for soft luxury goods.

Hermès reported its first-quarter sales update for fiscal 2026 with constant-currency sales up 6%. While its sales were stronger than those of peers Kering and LVMH, there was a sequential slowdown from high-single-digit growth seen in the prior year. Shares were down over 8%.

Luxury sector shares were down by 1%-7% on March 2 following the US and Israeli attacks on Iran and Iran's retaliatory attacks on Israel and US bases across the Middle East (United Arab Emirates, Saudi Arabia, Qatar, Kuwait, and Bahrain).

Hermes reported predictably solid fourth-quarter and full-year revenue, with unchanged trends in the second half. Operating margin for the year was up 50 basis points despite currency pressures.

We believe wide-moat Hermès International has carved out a unique niche in the luxury goods industry, which will provide it with continuing superior returns on capital. Hermes’ iconic leather bag styles (part of the EUR 6.5 billion leather goods segment) are in limited supply, supporting the brand’s exclusivity perception and providing the company with demand visibility and significant pricing power. Hermès Birkin and Kelly bags are sold in secondary markets and auctions for significantly higher than the initial purchase prices—an impressive feat for soft luxury goods.

Hermès reported solid performance in the third quarter with 9.6% constant-currency revenue growth.

Hermès posted solid sales growth in the second quarter, with positive contributions from all regions. Europe and Japan delivered double-digit growth, defying the broader luxury industry trend. The brand expects performance in the second half to remain consistent with the first.

We are increasing our fair value estimate for wide-moat Hermès International to EUR 1,580 from EUR 1,480, largely as a result of the time value of money effect as we update our models following a solid first-quarter 2025 revenue announcement. We view shares as overvalued.

We believe wide-moat Hermès International has carved out a unique niche in the luxury goods industry, which will provide it with continuing superior returns on capital. Hermes’ iconic leather bag styles (part of the more than EUR 6.5 billion leather goods segment) are in limited supply, supporting the brand’s exclusivity perception and providing the company with demand visibility and significant pricing power. Hermès Birkin and Kelly bags are sold in secondary markets and auctions for significantly higher than the initial purchase prices—an impressive feat for soft luxury goods.

We are retaining our fair value estimate for wide-moat Hermes as the company reported strong results for 2024, slightly ahead of our estimates. We see shares as expensive, trading at almost 60 times forward earnings.

We are maintaining our fair value estimate for wide-moat Hermes after the company reported solid third-quarter revenue figures, with the industry downturn having a limited impact on its peers. Hermes is widely and rightly regarded as a safe haven in luxury at the moment, although we remain cautious on the valuation. Demand for its products remains resilient and pricing is boosting revenue. However, we believe Hermes could have less upside in the industry recovery scenario given its supply constraints. At 13 times forward revenue (3.5 times for luxury peers), investors are overpaying for resilience in our view.

We are maintaining our fair value estimate of EUR 1,480 for wide-moat Hermes as the company reported strong, but decelerating revenue trends in the second quarter with some margin pressure. We are reducing our expectations for 2024 revenue growth and profits. Despite Hermes’ resilience during the industry downturn, shares look expensive.

We are maintaining our fair value estimate for wide-moat Hermes at EUR 1,480 as the company reported another solid quarterly sales growth in the first quarter. Despite defensive characteristics during industry slowdowns and exposure to more affluent clientele, we believe Hermes is trading at expensive levels, at over 50 times FactSet consensus forward earnings.

We believe wide-moat Hermes International has carved out a unique niche in the luxury goods industry, which will provide it with continuing superior returns on capital. Hermes’ iconic leather bag styles (part of the more than EUR 5.5 billion leather goods segment) are in limited supply, supporting the brand’s exclusivity perception and providing the company with demand visibility and significant pricing power. Hermes Birkin and Kelly bags are sold in secondary markets and auctions for significantly higher than the initial purchase prices—an impressive feat for soft luxury goods.

We maintain our fair value estimate of EUR 1,270 for wide-moat Hermes as the company reported strong fourth-quarter and full-year results. In the fourth quarter Hermes delivered 17.5% constant-currency revenue growth. This was an improvement from the third quarter (15.6% constant currency sales increase) but a deceleration from a strong first half of the year (25.2% constant currency sales increase). All in all, 2023 constant-currency revenue grew by 20.6%. More notably, Hermes easily outpaced peers, such as LVMH’s fashion and leather division (14% growth in 2023) and Kering (negative 4% in 2023). Strong sales were accompanied by margin expansion to a record 42.1%, up from 40.5% in 2022.

We maintain our fair value estimate of EUR 1,270 for wide-moat Hermes as the company reported strong third-quarter sales at 15.6% at constant currencies. This was still quite a meaningful deceleration from 25.2% growth at constant currencies in the first half. The Americas' performance continued to be remarkably strong with growth of 20.4%, broadly in line with first-half trends. Hermes is outperforming the vast majority of its luxury peers, which have suffered declines in this market in first-half 2023. We believe Hermes to be more resiliently positioned with less exposure to aspirational clients who are more economically sensitive. Sales in Europe also decelerated only slightly to 18% growth in the third quarter (22% in the first half). Asia, excluding Japan, was the weakest market with 10% constant-currency growth. This came in addition to a challenging comparison base (33.7% growth in this market in third-quarter 2022). Sequential deceleration was broad-based across product segments, with the ready-to-wear and watch segments showing the strongest performance in the quarter.

We believe wide-moat Hermes International has carved out a unique niche in the luxury goods industry, which will provide it with continuing superior returns on capital. Hermes’ iconic leather bag styles (part of the more than EUR 4 billion leather goods segment) are in limited supply, supporting the brand’s exclusivity perception and providing the company with demand visibility and significant pricing power. Hermes Birkin and Kelly bags are sold in secondary markets and auctions for significantly higher than the initial purchase prices—an impressive feat for soft luxury goods.

We increase our fair value estimate for wide-moat Hermes by 28% to EUR 1,270 per share as the company reported strong revenue growth and profitability improvement in the first half of 2023. Although we increase our assumptions for full-year profitability slightly, the bulk of our fair value increase comes from our reduced assumptions for the firm's cost of capital. We now assume a 7.5% cost of equity based on below-average systematic risk, 1.5 percentage points below the rate of return investors expect of a diversified equity portfolio. We believe this better reflects Hermes’ low sensitivity to economic cycles, low operating leverage, and low financial leverage. Our fair value implies a multiple of 35 times 2023 estimated earnings, still well below the market multiple of 50 times earnings.

We are maintaining our fair value estimate of EUR 990 per share for wide-moat Hermes as the company reported strong first-quarter sales, helped by continued solid volume growth and price increases.