Hermes, A Manufacturer of Birkin Bags, Shows A Little Increase in Sales

Hermes (HRMS.PA) opened a new page on Wednesday, reporting a small acceleration of growth in the second quarter as French tourism returned and the effects of the Middle East war subsided.

However, investors, who are searching for clear indications of a widespread revival in the luxury market, were not impressed with the French luxury giant’s performance, and shares dropped 4% in early trade on Wednesday.

According to Hermes, sales of goods including handbags, silk scarves, and perfume increased by 6.7% in currency-adjusted terms to €4.1 billion ($4.67 billion) in the second quarter, which was higher than the 6% growth in the first quarter and in line with expectations.

The data was released following Monday’s similarly disappointing results from industry leader LVMH. On the other side, Gucci owner Kering pleasantly shocked the market by announcing better-than-expected profits at its largest brand, Gucci, indicating that CEO Luca de Meo’s turnaround effort is beginning to pay off.

Analysts stated that although Hermes’ operating profit margin of 41% was better than anticipated, investors are likely to be interested in the relatively small increase in sales.In a letter to clients, JPMorgan analysts stated, “We believe investors will concentrate this morning on the top-line growth and Hermes’ slower pace of reacceleration vs peers.”

Hermes, which meticulously manages production and sales to preserve exclusivity, fared better than competitors during the COVID-19 pandemic and was the most resilient luxury group in years.

However, growth in the first quarter dropped to high single-digit percentages due to the impact of the Middle East crisis on consumers’ appetite from Dubai to Paris.

The group stated that while growth in France climbed by 6% after declining in the first three months of the year, the impact of the conflict diminished in the second quarter.CEO Axel Dumas stated, “We are seeing improved momentum in our Paris stores in the second quarter,” adding that the country’s visitor flow had improved.

Hermes shares dropped 3.2% to 1,642 euros at 0734 GMT after falling as much as 4% in early trading.