Hermès revealed on Thursday that its sales fell by 7.7 percent in the first quarter of the year to $1.63 billion as the Coronavirus outbreak forced it to close up its workshops and stores across the globe. But while the stalwart French luxury brand’s revenue might be down, that 7.7 percent is less than the expected 12 percent drop, prompting analysts to call the financial results for the three month period “the strongest organic growth performance of the luxury goods sector.”
Reflecting on the quarter, Hermès reported that its Leather Goods and Saddlery business saw some of the smallest declines in sales (6 percent), beaten only by its Perfumes group (down 3 percent) and its “Other” business lines, which were actually up by 4 percent, thanks, in large part, to its Jewelry offerings. Ready-to-wear sales were down by 11 percent for the quarter, and Silk and Textiles fell by 20 percent, having been “more severely penalized by the decline in sales prior to the store closures.”
Sales in Mainland China remained relatively flat for the first three months of the year after benefitting from “a very good month of January due to the Chinese New Year,” the brand revealed on an investor call on Thursday, but sales dropped off in the country at the end of the month due to the COVID-19 crisis. Having reopened all of its mainland Chinese stores this month, Hermès says that local clients are returning to stores, and it is preparing for “a bounce back in demand,” which was seemingly foreshadowed by $2.7 million that it reportedly brought in on a single day when it reopened its Guangzhou flagship.
Looking ahead, the 183-year old company says that “sales in the second quarter will be significantly impacted by the closures of a significant part of the network,” namely, the U.S. and Europe, with its ready-to-wear division is likely to suffer the most during the global health pandemic, as “it is seasonal and driven by store traffic.” As for leather goods, the brand says that its “investments in production capacity have been maintained,” and so, output is expected to remain the same as last year.
Still yet, Hermès says that while its stores have been closed, it enjoyed a “strong” e-commerce performance in January and February, with its online channel has experienced 50 percent growth in the first quarter of the year, with sizable growth coming from China and Japan, in particular.
“In the medium term, despite growing economic, geopolitical and monetary uncertainties around the world,” Hermès CEO Axel Dumas stated on Thursday that the group “confirms an ambitious goal for revenue growth at constant exchange rates.”
In a note on Thursday, Bernstein analyst Luca Solca asserted that Hermès’ “better than expected results … stand up to its reputation,” but counters that luxury brands across the board can expect a “sharp decline in consumer demand – and possibly medium-term damage to consumer confidence and propensity to spend,” while Hermès, in particular, may suffer from a “reduced ‘rarity effect,’ perceived exclusivity, and – ultimately – brand desirability long-term,” should it focus too significantly on “higher leather goods volumes as silk declines.”
In terms of demand for the house’s most coveted creations – i.e., its Birkin and Kelly bags – as of now, it has not dropped off from a resale perspective. In a discussion with Solca early this week, as reported by Bloomberg’s Robert Williams, Max Bittner, CEO of Paris-based luxury resale site Vestiaire Collective, said his company has seen “some initial indicators” that sales for those models are “better now” than in previous periods.
At the same time, Jeffrey Berk, the co-founder of Prive Porter, an Hermès-only reseller, said that he is “moving more of the handbags than ever,” having told TFL last month that sales on his end are not faltering amidst the global health pandemic. In fact, the number of new customers that Prive Porter saw in March, alone, was up. “Our customers are super-affluent and are largely immune to the financial impact of this Black Swan moment, for right now anyway.”