Hermes Q2 sales rise 9% on price hikes, strong demand in the Americas

Luxury fashion house Hermes (EPA:HRMS) reported a 9% increase in second-quarter sales to €3.9 billion at constant exchange rates, aligning with market expectations, with H1 sales reaching €8.03 billion. Despite implementing price increases, including a 7% global hike and an additional 5% in the U.S. to mitigate tariff impacts, H1 EBIT of €3.33 billion and EPS of €21.39 were slightly below consensus estimates. Growth was primarily driven by the Leather Goods & Saddlery segment (+14.8% in Q2) and strong regional performance in Japan and the Americas, although Watches and Perfume segments saw declines. The company reiterated its medium-term ambition for robust revenue growth at constant exchange rates.

Analysis

Hermes (EPA:HRMS) demonstrated resilient top-line performance in its recent earnings report, with second-quarter sales rising 9% to €3.9 billion at constant exchange rates, largely aligning with the 10% consensus forecast. However, the results reveal significant underlying divergences. For the first half, profitability presented a mixed picture against analyst estimates; while reported EBIT of €3.33 billion appears to have surpassed the cited Jefferies consensus of €3.27 billion, earnings per share of €21.39 fell short of the €21.90 forecast. Growth is becoming increasingly dependent on its core Leather Goods & Saddlery division, which expanded 14.8% and created a performance gap of approximately 1000 basis points over non-leather segments. This strength in its primary category, along with robust sales growth in Japan (+14.7%) and the Americas (+12.3%), is masking notable weakness in other areas, including sales declines in Watches (-5.5%) and Perfume & Beauty (-7.2%), as well as more modest growth of 5.2% in the crucial Asia-Pacific ex-Japan region. The company's successful implementation of price hikes to offset tariff impacts underscores its strong pricing power, though the focus for investors now shifts to commentary on early Q3 demand to gauge the sustainability of this momentum.

Key Decisions for Investors

• Investors should scrutinize the growing divergence between the outperforming Leather Goods & Saddlery division and the declining Watches and Perfume segments, as over-reliance on a single category presents a concentration risk.
• Monitor upcoming management commentary on early Q3 demand, particularly concerning the Asia-Pacific ex-Japan region where growth slowed to 5.2%, a potential leading indicator of softening consumer sentiment.
• While the company's pricing power to offset tariffs is a positive signal, the slight H1 earnings per share miss warrants caution regarding underlying margin pressures, even as top-line growth remains robust.