EUR 850.00 For Business Accounts Only

Morningstar | Hermes Continues to Deliver Strong Results Boosted by Asia; Shares Expensive

We are maintaining our wide moat rating and fair value estimate of EUR 364 per share for Hermes as the company reported first-quarter constant-currency sales growth of 11.6%, ahead of our 8.9% full-year expectation. Leather goods division sales grew 12.5% versus the 10% we expect for the year. Management highlighted increased product diversity in this division with 10 recently launched or older relaunched bag models driving growth. Increasing diversity of product offerings in this core division may help mitigate the cyclicality of the business and widen the offering to the existing affluent clientele.

Ready-to-wear increased 13.4% versus our 10% annual expectation, silk and textiles grew 2.5% versus the 2% growth we expect for the year, other Hermes sectors 18% (11% our annual expectation), fragrances 3% with less tailwind from new product launches compared with past years (8% our annual expectation), and other products 6.8% (4% our annual expectation).  Watch sales grew significantly above our expectation at 22% and significantly above Swiss watch exports (3%) and LVMH’s watch and jewellery division growth in the quarter (4%). Growth for watches was driven primarily by own retail channels, new model launches, and the existing line revival.

All geographies contributed positively to performance, with continuing strength of Chinese demand and no change in trends. Asia-Pacific excluding Japan grew 16.9% at constant exchange rates in the quarter; Japan, Americas, and Europe excluding France all grew at a high-single-digit pace. France was the only laggard, with 1.4% growth negatively affected by lower traffic and store closures due to social unrest.