PARIS —Hermès has reinforced security at its stores in France following last weekend's unrest, but has seen no impact on sales so far, the luxury group said on Thursday as it reported its lowest quarterly growth rate in six years amid weakening demand in China.
Windows were broken at stores in Lyon, Nantes and Paris, but no one breached those boutiques, executive vice president of finance Eric du Halgouët said on a conference call on the third-quarter results.
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However, the Marseille store, which was attacked and looted during the unrest, "will not reopen anytime soon," he added.
Du Halgouët added that it is too early to assess any longer-term impact on sales or tourism as a result of the unrest, with more protests planned in the coming weeks.
"It's too early right now to gauge the impact on our stores, and even less so on tourism. We haven't noticed anything different over the last couple of days," he said.
However, analysts see risk as the political situation heats up.
"Public disorder in France (about 10 percent of sales) adds further risk, given planned marches threaten store traffic and tourism after growth of just 3.6 percent there in the third quarter," said Bloomberg Intelligence analyst Deborah Aitken.
Hermès International reported third-quarter revenue growth of 4.3 percent at constant currency to 4.1 billion euros, as strong demand for leather goods and continued momentum in the Americas and Europe offset stagnation in China.
That fell short of analysts' expectations for 5.2 percent growth in the third quarter, and marked the slowest growth rate in six years, following a post-pandemic boom.
"This reflects a natural, albeit perhaps sharper-than-expected normalization in growth following an unsustainably strong plus 18 percent" growth in the post-pandemic years, said Citi Research analyst Thomas Chauvet.
"Overall, we view the result as disappointing," said Deutsche Bank Research analyst Adam Cochrane. "The miss at the group level, coupled with weakness in ready-to-wear and accessories and softer regional growth outside Europe, outweighs the better-than-expected leather goods performance."
Leather goods remained the main growth category for the Kelly and Birkin bag maker, with sales increasing 10.8 percent at constant currency.
Elsewhere, perfume and beauty sales rose 7.5 percent at constant currency, while sales at its subsidiaries, including John Lobb shoes, Saint-Louis glassware and Puiforcat silverware, grew 10.5 percent. Sales of the brand's silk scarves were up 1.4 percent.
But ready-to-wear and accessories sales took a small hit, down 2 percent in the third quarter, though du Halgouët emphasized that combined category fall was largely due to footwear and accessories sales in China, while ready-to-wear "remained positive" overall.
Jewelry and home products fell 1.1 percent. Watches remained the weakest category, dropping 6 percent in the third quarter.
The results reflect the growing divergence between Hermès' flagship leather goods business and the rest of its portfolio, as a weaker Chinese consumer environment weighs on purchases of accessories, shoes and watches.
Greater China saw a slowdown in the third quarter, against a continuing difficult backdrop. Du Halgouët cited weakness in the property market, low consumer confidence and a high savings rate, alongside recent declines in financial markets.
He also pointed to a new Chinese tax on offshore goods, which he described as imposing a 20 percent charge retroactively over the previous three years, potentially creating an additional financial burden for affected consumers. The tax will be another element to consider in China, as luxury spending remains tight.
"Consumer trust in China is still quite low, with a very high savings rate and lower consumption, which remains unchanged," he said.
The weakness has been particularly visible in categories that depend on volume. Asked what was driving the slowdown, du Halgouët pointed to a decline in footfall "more than anything else."
"What we see is that it's the volume divisions that are suffering," he said, citing accessories, watches and shoes among the most affected categories. Stronger spending on higher-value products, including handbags and jewelry, has offset some of that decline, he added.
"We remain confident on the potential of China for the mid- and long-run. We've got a very qualitative distribution network there with few stores, but in good locations," he said, noting that the company has revamped stores and will continue renovations at its retail locations.
Outside of China and Japan, the rest of Asia saw "solid performance" in South Korea, and a "speed up" in Singapore and Thailand in the third quarter, he said.
New London Flagship Exceeds Expectations
Europe excluding France was one of the company's strongest-performing regions, with sales in southern countries including Italy, Spain, Turkey, Portugal and Greece driving growth.
The U.K. also accelerated, boosted by the opening of the new Hermès flagship on New Bond Street in London in June. The store "has exceeded our expectations," said du Halgouët, generating more sales than its previous flagship while "not cannibalizing" sales at the other London locations.
Tourist flows into Europe and the U.K. helped boost sales toward the end of the summer, particularly clients from the Middle East traveling to Italy and the U.K., as political instability continued to affect the region.
Hermès' next big retail location will be Geneva, with a new flagship opening there in early November.
In the Americas, strong sales were region and category-wide, said du Halgouët, with higher foot traffic and a larger average basket boosting sales in the U.S. with continued strong demand, despite the inauguration of a "wish list" allocation system à la Europe which allegedly rolled out this summer.
"It's not significant. It has nothing to do, I would say, with the slightly slower growth that we've seen in Q3," said head of investor relations Alexandra Boucheron, who did not comment further on the system.
The "wish list" system, in which clients indicate interest in sought-after handbags for future allocation, was implemented according to client reports on social media.
"It's not significant. It has nothing to do, I would say, with the slightly slower growth that we've seen in Q3," said head of investor relations Alexandra Boucheron.
The company will open a store in Manhasset, N.Y., on Oct. 29.
Du Halgouët also noted strong growth spread across Mexico and Brazil.
In France, the sales boost in the quarter was driven by strong summer sales in destination locations across the French Riviera, particularly Cannes and Monaco. Parisian stores, however, experienced a weaker summer as the repeated extreme heatwaves culled foot traffic.
Paris showed improvement in September, with the trend continuing into early October, du Halgouët said.
However, that recovery now faces a new uncertainty following the protests and damage to shops across France last weekend, and new actions called for coming weekends.
In the Middle East, foot traffic has plummeted by around 25 percent amid the political instability in the region.
Du Halgouët said the region's performance was supported by retail sales at its own-brand stores, while the company's focus on higher-value products, particularly leather goods and jewelry, helped cushion the decline.
"The region remains a strong growth potential for the group, hoping that the situation will improve in the near future," he said.
Handbags Carry Growth, While Beauty, Jewelry Offer Opportunity
What Birkin fatigue? Despite online chatter about the brand's flagship bag losing its scarcity appeal — in part due to a flood of goods available on the secondhand market — du Halgouët said sales for both the Birkin and Kelly continued to lead the category, and the company is continuing to increase its production capacity with three new workshops by 2030.
But the strength of the category led analysts to worry that the company might be too dependent on the continuing appetite for purses.
Hermès "remains relatively resilient, although growth is becoming increasingly reliant on leather goods," said Citi's Chauvet. "Continued double-digit growth in the category is reassuring, particularly given broader weakness and maturity challenges elsewhere in luxury."
It's also continuing to invest in jewelry — particularly fine jewelry, which continued to shine.
"We're going to continue with our vertical integration to increase our production capacity and to grow fine jewelry," du Halgouët said. "We will continue to extend our stores precisely because we want to better show off our offering of jewelry and fine jewelry."
The company is also investing in its perfume and beauty business, which grew in the third quarter following a series of product launches. The division has benefited from new fragrances and beauty products, although sales through external distributors have been affected by efforts to reduce inventories.
But the company's own-brand stores continued to show strong demand for the category, again prompting expansion of dedicated spaces in its retail locations, particularly as the category will expand further with skin care rolling out in 2028.
Despite the decline on paper of the ready-to-wear category, this was mostly due to weakness in accessories while clothing sales remained strong.
"Q3 does not reflect the positive underlying trend," du Halgouët said, adding that the division was growing outside China. He noted that ready-to-wear sales have increased 80 percent over the past four years, leaving it with a demanding comparison base.
Hermès is looking to its next creative milestones to sustain momentum. Grace Wales Bonner's first menswear collection and a new couture offering by Nadège Vanhée are expected in January. The company is anticipating "a halo effect" for ready-to-wear, particularly womenswear, from excitement around these collections.
The company is also developing new footwear models, including boots, to strengthen the category.
Online sales are growing, but at a slower pace than retail, executives said. Hermès has broadened the selection of products displayed on its e-commerce platform, including leather goods, to better reflect the range available to customers.
The company is anticipating price increases of 4 to 5 percent in 2027, a "meaningful" number, but slightly lower than its increases earlier this year, du Halgouët said.
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