Hermes quarterly sales jump 17% on strong China demand

By Mimosa Spencer

PARIS (Reuters) - Birkin bag maker Hermes reported a 17% surge in first-quarter sales on Thursday, sustaining a rapid growth rate from the previous quarter including in China, and underlining strong demand for high end luxury.

Its first-quarter growth beat expectations and far outpaced larger rival LVMH, showing the strength of businesses operating in the top end of the market and defying broader weakness in key market China.

Sales rose to 3.81 billion euros ($4.08 billion) for the three months to March 31 and beat expectations for a 13% rise, according to consensus provider Visible Alpha.

One of the most consistent performers in the luxury goods sector, the fashion group is known for its ability to maintain strong growth even in the face of deteriorating economic conditions.

Hermes shares traded down 2.5% in late morning trading as investors who have benefited from an over 20% rise since the start of the year, took profits.

The consensus-beating sales figure was probably not a "major surprise" given the company's record over the past four years of exceptional growth and "consistent over-delivery on expecations," said Thomas Chauvet, analyst with Citi.

He highlighted, as an exception, a miss in expectations for the smaller watches division, which clocked 4% growth, compared to Citi's forecast for 11% growth.

Sales updates from several leading luxury groups including LVMH and Kering have offered little reassurance that Chinese demand for high-end fashion is bouncing back.

Consultancy Bain forecasts mid-single-digit percentage growth for China's luxury market this year, slowing from 12% growth in 2023, when business boomed following the lifting of COVID-related lockdowns.

Hermes, which sells handbags priced at more than $10,000, said its sales in Asia excluding Japan grew 14%, and all other regions reported double-digit rises.

The company saw "slightly softer" traffic in China in March following the Chinese New Year holiday, Hermes Executive Vice-President Finance Eric du Halgouet, told journalists.

However, strong demand from wealthier clients offset fewer store visits from clients seeking more affordable silk items and fashion accessories, he said.

"Our more well-off clients continued to visit our stores," said du Halgouet, noting that average spending was higher.

Globally, the leather goods division, the company's largest, grew by 20% in the quarter, driven by new models such as the Constance Elan bag.

After holding back when Chanel, LVMH-owned Dior and Louis Vuitton raised prices of their handbags more aggressively during the pandemic, Hermes started raising prices more significantly from last year.

This year's increase of 8% will provide it with a tailwind, said analysts at Bernstein.

Hermes has a higher valuation than rivals with a 12 month forward price-to-earnings ratio based on projected earnings of 51, according to LSEG data. That compares with LVMH at 24 and Kering at 16.

($1 = 0.9340 euros)

(Reporting by Mimosa Spencer; editing by Dominique Patton, Jason Neely and Tomasz Janowski)