Hermès quarterly sales hurt by weakness in Chinese luxury demand

For more China-focused finance coverage, subscribe to the Jing Finance newsletter for the latest news, business updates, global analysis, and trends shaping financial markets. Hermès’ sales at the start of the year were hurt by a slowdown in Chinese demand, showing that even the most resilient purveyor of high-end goods wasn’t spared the slump in the luxury industry there. First-quarter sales in Asia-Pacific excluding Japan rose 1.2% at constant exchange rates, Hermès International said in a statement today, below the 4% gain analysts had expected. Overall, Hermès’ revenue in the period was slightly shy of analyst estimates. Asia-Pacific performance falls below expectations The rare disappointment from Hermès — the maker of the coveted Birkin bag — comes as the luxury market is struggling to emerge from a period of sluggish growth caused in large part by Chinese shoppers reining in costly purchases. The industry’s outlook has grown even gloomier since U.S. President Donald Trump this month imposed 10% tariffs on imports from the European Union, while pausing plans for a 20% levy for 90 days. Hermès will increase prices in the U.S. as of May 1, Chief Financial Officer Eric du Halgouet said on a call with reporters. “We will fully compensate the impact of these new tariffs” on all the product categories, he said, adding that the final pricing decisions are still being ironed out. Performance in China was hurt by lower traffic in stores amid a property market downturn and also because of the higher basis of comparison from a year ago, he said. Ultra-wealthy clientele provides buffer against market volatility Hermès has still continued to outperform rivals in part because it caters to the world’s wealthiest clients, whose spending habits tend to be less affected by economic downturns. It also enjoys strong pricing power and waiting lists for its top-line handbags, thanks to a managed-scarcity driven production model that boosts their exclusivity. The company’s sales in the first quarter grew in all regions, with the Americas posting an 11% jump. Earlier this week, LVMH Moët Hennessy Louis Vuitton posted lower-than-expected quarterly sales at its key fashion and leather goods unit. The owner of Christian Dior suffered in particular from weak demand in the region that includes China, with revenue there sliding 11%. Hermès’ ability to weather the downturn in demand for luxury goods better than rivals has helped its shares. LVMH’s disappointing sales this week drove down its stock, helping Hermès dethrone its rival to become the world’s most valuable luxury company. The enduring allure of scarcity economics Hermès’ supply-constrained business model has ensured that demand for its handbags like the Birkin, named after the late British singer-actress Jane Birkin, and the Kelly, inspired by Princess Grace Kelly, outstrips what’s on offer. These bags can sell for about 10,000 euros ($11,378) in Paris and can fetch much higher prices on the resale market. In February, the valuation of Hermès briefly crossed a symbolic 300 billion euros ($341 billion) mark, but concerns about an escalating global trade war have since hurt the wider luxury sector. By Angelina Rascouet

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Hermès quarterly sales hurt by weakness in Chinese luxury demand