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Shares in Hermès fell as much as 13 per cent on Wednesday after the luxury group suffered a slowdown in sales, capping a difficult start to the year for the sector as the Middle East conflict hits demand.
Revenues at the Birkin bag maker fell to €4.07bn in the first quarter, 1 per cent lower than the same period last year. Stripping out currency moves, sales rose 5.6 per cent, still short of analyst forecasts of 7.1 per cent growth.
Hermès reported a “slowdown in tourist flows linked to the situation in the Middle East”, and said sales in the Gulf region had been “significantly impacted by recent geopolitical developments”.
The war in the Middle East is taking a toll across the luxury industry. Shares in Kering also tumbled 10 per cent on Wednesday after it reported a hit from the war and an ongoing slump in sales at its Gucci brand. Industry leader LVMH said this week that the conflict had hit demand at its fashion and leather goods business.
Hermès, which has a market capitalisation of about €170bn, is usually more resilient than peers during downturns thanks to its sheltered, ultra-wealthy clientele and lower reliance on tourist flows for business.
Demand for its signature bags, such as the Birkin and Kelly, far outstrips supply, and the company adds only a limited amount of manufacturing capacity every year.
However in recent months geopolitical tensions have prompted concerns about the health of the luxury sector and analysts question how long Hermès can sustain its superior growth. The group’s shares are down by about 30 per cent over the past year.
Eric du Halgouët, Hermès’ chief financial officer, said that 40 of the company’s 60 concession stores were travel retail outlets and have been affected by disruptions to air travel.
In France, a popular shopping destination for Middle East tourists, sales fell by 2.8 per cent. Du Halgouët said that over half of its sales in France are to tourists. This was “partly offset” by American visitors, he added, while local demand across Europe continued to grow by double digits.
America was a bright spot with sales growth of 17 per cent, ahead of analysts’ expectations of 14 per cent. Du Halgouët said there was “strong momentum” in the region.
Sales within Hermès’ leather goods division, its biggest by sales and profits, rose by 9 per cent, falling short of analysts’ forecast of 12.2 per cent. But du Halgouët said that growth in sales of leather goods would increase gradually in the coming months and that “demand remains in all markets both for iconic bags and all other bags.”
Sales in Asia grew 3.5 per cent, below analysts’ forecast of 7.7 per cent. While LVMH this week reported its best quarter in China since 2023, Hermès did not point to a strong recovery in the region.
Du Halgouët said that it “remains to be seen” how the slowdown in the Middle East would impact its profitability for the full year. He said that so far the hit to sales in the region was “not significant on profitability”, adding that Hermès can absorb the impact “without too many difficulties” for two more months.
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