The luxury powerhouse Hermès has released its financial report for the entire year of 2024, unveiling impressive figures that highlight its continued growth and stability in a competitive marketAccording to the report, the group achieved revenue of €15.2 billion, reflecting a 15% increase compared to the previous year when calculated at constant exchange ratesFurthermore, the company’s recurring operating profit rose to €6.2 billion, with a recurring operating margin at an impressive 40.5%, though slightly reduced by 1.6% year-on-yearThe net profit also soared to €4.6 billion, constituting a remarkable 30.5% of total salesNotably, during the fourth quarter alone, sales reached €4 billion, with a significant 18% increase on both constant and current exchange rate comparisons, which surpassed market expectations and positioned Hermès well ahead of its competitors.

When dissecting geographical performance, growth was evident across all marketsThe Greater China region experienced a slight decline in customer traffic since the end of the first quarter; however, there was a rebound in the fourth quarter, boasting a 9% growth rateThe Americas market, on the other hand, demonstrated outstanding performance, surging by 22.3% in the fourth quarter to reach €870 millionIn terms of product categories, leather goods and saddlery grew by 18% with the introduction of the new Arçon bag and three additional workshops, while the ready-to-wear and accessories segment advanced by 15%. Jewelry and home segments also flourished, increasing by 17%. Conversely, the watch business faced a downturn, experiencing a 4% decline, influenced by the broader market environment.

Despite the favorable results, the stock market's reaction on the day of the financial report was less than stellarAfter opening high, reaching €2,957 per share, the stock eventually closed at €2,839, which only slightly increased by 0.82%. The following trading day saw a minor dip of 1.06%, closing at €2,809. As of the time of this report, Hermès’ stock price has fallen below €2,800, indicative of a cautious sentiment among investors in an overall uncertain economic landscape.

Some analysts have suggested that while Hermès continues to enjoy considerable growth, there are prevailing questions about its future narratives amidst a cooling luxury market

Advertisements

Will this esteemed brand be able to craft new stories that resonate with consumers? With aspirations set on reaching a revenue milestone of €20 billion, Hermès seems poised to explore new frontiers in luxury.

The luxury sector, however, remains marked by rapid differentiation among brandsRecent performances from leading luxury groups illustrate a stark contrast: Richemont has shown remarkable growth, LVMH is stabilizing, and Kering appears to be under pressureLVMH reported a 2% decline in annual revenue to €84.7 billion with a minimal rise of 1% in the fourth quarterConversely, Richemont witnessed an impressive 10% surge in its third quarter revenue, reaching €6.15 billion, driving its share price up by 17%. Meanwhile, Kering's financial year concluded with a 12% drop in sales, totaling €17.2 billion.

Hermès is not just surviving; it is thrivingWith a net profit margin that exceeds 30%, slightly down from 2023 but still higher than in 2022, the brand has successfully maintained continuous growth in both revenue and net profit over the past four years, despite the vanishing illusion of hypergrowthThe past decade has seen annual average growth rates for Hermès revenue and net income at an impressive 14% and 18%, respectivelySuch sustained, robust performance is a testament to the brand's dedication to quality and crafting a loyal high-end customer baseIf Hermès can sustain its approximate 15% annual growth rate, it is projected that the company could breach the €20 billion revenue barrier as early as 2026.

As Axel Dumas, CEO of Hermès, articulates, “The success of Hermès is rooted in its values of authenticity and craftsmanship, rather than merely responding to market demands or marketing gimmicks.” He points out that following the financial crisis of 2008, consumer attitudes towards consumption and investment shifted dramaticallyThere has since been a noticeable inclination towards genuine products and exquisite handmade craftsmanship, traits that Hermès has consistently delivered

Advertisements

By favoring limited production and prioritizing quality over mass expansion, the brand has defined its unique position in the luxury sector.

Additionally, Eric Dualgoete, the Executive Vice President of Finance, laid emphasis on the brand's reliance on its domestic clienteleHe noted that despite the allure of lower prices in the Japanese market, Hermès' main consumers do not seek discount options; rather, their core strength lies in the unwavering support of local clientsAs such, the influx of international “tourist traffic” does not significantly affect Hermès' performance, unlike many of its competitors who leverage such traffic for revenue.

Yet Hermès is by no means complacentThe luxury brand seems intent on continually pushing the limits of what constitutes high-end luxuryFor instance, the company has articulated plans to enhance leather production capacity utilization and integrate price increases as strategies for revenue augmentationThe share of revenue from the leather goods sector is projected to settle at around 42.5% by the end of 2024, a decline from 50% in 2020, yet it reflects stable operational rhythms without drastic fluctuations.

Axel Dumas has also hinted at the possibility of launching a high-end custom fashion line, planning a debuts as early as 2026 or 2027. The idea is that compared to its competitors, Hermès' ready-to-wear customers are distinctive, resilient, and have a larger demographic, potentially heralding a game-changing strategy that could reshape its market positioning against established powerhouses like Chanel and Dior.

However, expansion into ready-to-wear does not imply a neglect of other business sectorsDualgoete emphasized the importance of maintaining similar profit margins across divisionsUnlike the previous dominance of leather goods and silk, jewels and shoes are poised to potentially become Hermès’ core business over the next two decadesWhile jewelry remains a newcomer within the Hermès portfolio, the potential for growth stands unassailable as the competitive investment landscape among luxury brands heats up.

Finally, regarding geopolitical tensions and the impact of tariffs, Hermès has voiced that their primary concern is not the tariffs per se, but rather the increasingly strained relationships between people

Advertisements

Advertisements

Advertisements