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Why Hermes, Louis Vuitton can't stop smiling

Luxury shoppers are more invested in established premium brands after a year of covid-19 pandemic

Models present creations by Nadege Vanhee-Cybulski as part of her Spring/Summer 2021 ready-to-wear collection for Hermes, during Paris Fashion Week in October. (REUTERS)

Hermes International sales jumped as the Birkin bag maker continued to benefit from its established appeal as a premium luxury brand.

Sales rose 16% in the fourth quarter at constant exchange rates, almost twice as much as analysts expected. The leather goods unit was the main driver behind the performance. The shares rose as much as 8.9% to a record.

Hermes, also known for its silk scarves, joins LVMH in reporting better-than-expected results as luxury shoppers turn their attention to established premium brands including Louis Vuitton and Dior during the pandemic.

The results contrast with Kering SA’s Gucci, whose sales declined last quarter. Earlier this week, Reuters reported Kering was betting on a marketing drive and fashion events to boost Gucci in the brand's centenary year, after sales at the flagship label missed forecasts and lagged some rivals at the end of 2020.

Gucci accounts for 60% of revenues and 80% of profits at Kering and has been one of the industry's top performers in recent years. But it faltered in the fourth quarter compared to soaring revenues at rivals like LVMH's Louis Vuitton.

As opposed to Gucci, Hermes has benefited from a strong customer base in European countries. For most luxury companies, the region has been the worst-performing amid a lack of Chinese tourists, shoppers who have helped drive growth at Gucci in the past decade.

Fourth-quarter revenue at Hermes rose about 39% in Asia, on an adjusted basis, and shrank 9.7% in Europe.

The luxury company isn’t seeing a change in behaviour coming from Chinese shoppers compared to the last three months of 2020, Chairman Axel Dumas said on a call with reporters.

The company also doesn’t plan major price increases this year, probably around 1%, similar to last year. The company typically only raises prices to reflect the increase in input costs, Dumas said.

Full-year recurring operating income fell 15% to 1.98 billion euros ($2.4 billion), topping estimates.

“Hermes confirmed its superiority to peers in 2020 with the reduction in tourist flows more than offset by a loyal customer base,” Deborah Aitken, analyst at Bloomberg Intelligence wrote in a note. Asia is showing “promise.”

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