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Hermes set to raise prices again as booming sales outpace rivals

2024 02 09T071559Z 1 LYNXMPEK18077 RTROPTP 4 HONGKONG LUXURY scaled - Global Banking | Finance

Hermes set to raise prices again as booming sales outpace rivals

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)

 

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