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Hermes set to raise prices again as booming sales outpace rivals
Global Banking & Finance Review®
Company
By Mimosa Spencer
PARIS (Reuters) -Birkin bag maker Hermes said on Friday that it will raise prices again this year after sales jumped 17.5% in the fourth quarter of 2023, continuing its track record of outpacing rivals when economic conditions deteriorate.
Shares in the company opened 4.2% higher after sales for the three months to the end of December totalled 3.36 billion euros ($3.62 billion), up 17.5% at constant foreign exchange rates and ahead of expectations for 14% growth, according to Visible Alpha consensus estimates.
Hermes said it will pay a 4,000 euro bonus to each of its over 22,000 employees worldwide.
The company plans to lift prices by between 8% and 9% this year globally, executive chairman Axel Dumas told reporters.
Hermes raised prices by around 7% globally last year to account for higher production costs, with the exception of the U.S., where increases were around 3%, and Japan, where they were in the double digits due to currency fluctuations.
Hermes has become one of the most consistent performers in the luxury goods industry thanks to its classic designs and careful management of production and stocks, which helps maintain the label’s aura of exclusivity.
“Hermes is playing in a different league,” JPM analysts said in a note. “Hermes comes in today showing, in our view, what a real over delivery is about,” they said, pointing at strong brand momentum and strong cash returns to shareholders.
Citi analysts said: “Hermes is well-positioned in 2024.”
The French luxury label clocked strong growth in all regions, and flagged “dynamic” growth in China where investors have been worrying about a stuttering recovery post-COVID.
“There has been no interruption in trends,” Dumas said, noting that while he noticed lower mall traffic in China during his last trip to the country over the fourth quarter “that’s not reflected in our figures.”
Hermes has a higher valuation than rival luxury groups. Its 12 month forward price-to-earnings ratio, based on projected earnings is 47.7, according to LSEG data. That compares with LVMH at 24.2 and Kering at 15.6.
Handbags like the coveted $10,000 plus Birkin model are affordable only for the wealthiest shoppers who are typically more immune to unfavourable economic conditions.
($1 = 0.9283 euros)
(Reporting by Mimosa Spencer; Additional reporting by Ingrid Melander; Editing by Matt Scuffham and Elaine Hardcastle)
A luxury brand is a high-end product or service that is associated with quality, exclusivity, and prestige. These brands often command higher prices due to their perceived value and craftsmanship.
The price-to-earnings (P/E) ratio is a financial metric that compares a company's current share price to its earnings per share (EPS). It is used to evaluate the valuation of a company's stock.
Foreign exchange, or forex, refers to the global marketplace for trading national currencies against one another. It is one of the largest financial markets in the world.
A bonus payment is an additional compensation given to employees, often based on performance, company profits, or other criteria. It serves as an incentive and reward for employees.
Economic growth refers to an increase in the production of goods and services in an economy over a period of time, typically measured by the rise in gross domestic product (GDP).
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