Birkin bag maker Hermes sees no U.S. slowdown as sales jump 23%

© Reuters. FILE PHOTO: A Hermes store sign is seen at a shopping mall in San Diego, California, U.S., November 23, 2022. REUTERS/Mike Blake

By Mimosa Spencer

PARIS (Reuters) -Sales at Birkin bag maker Hermes rose 23% in the first quarter, above market expectations, as wealthy shoppers in China and Europe splurged on luxury fashion and accessories despite higher prices and global market turmoil.

Shares were up 1% in morning trading.

Hermes finance chief Eric du Halgouet told journalists store traffic in the United States, where rival LVMH (EPA:LVMH) earlier this week flagged softer demand for fashion, leather goods and jewellery, continued to rise.

"What we're seeing in the United States is globally an increase in (store) traffic, the trends we've seen in April remain favorable, with, again, very dynamic traffic," he said.

"We obviously remain vigilant as far as macro trends are concerned ... but we have not seen a slowdown so far."

Bernstein analyst Luca Solca said strong U.S. growth for the group, which posted a 19% increase in sales in the Americas region compared to 8% U.S. growth for LVMH, was particularly noteworthy.

"It confirms Hermes's superior ability to plough through adverse demand trends, leveraging its high brand desirability and waiting lists for iconic products," he said.

"Higher end exposure to richer consumers is probably also helping."

One of the steadiest performers in the luxury goods industry, Hermes has a reputation of weathering downturns better than rivals, thanks to its classic styles that appeal to older and wealthier shoppers who are more immune to economic crises.

Careful management of productions and stocks have helped maintain the label's aura of exclusivity, and its coveted $10,000 plus Birkin handbags tend to generate waiting lists and can sometimes increase in resale value.

As part of its strategy of increasing production at a rate of around 7% per year, Hermes last week opened a new site in Normandy that makes Kelly handbags -- a model designed in the 1920s that became associated with actress Grace Kelly in the 1950s.

Hermes has also been investing in the U.S. market, where it generated 18% of its annual sales last year, adding stores in Florida and Texas as well as on Madison Avenue in New York.

Group sales for the three months ending in March came to 3.38 billion euros ($3.74 billion). The increase of 23%, at constant exchange rates, beat a Visible Alpha consensus for 15% growth.

In China, where Hermes was less affected than competitors by lockdowns that dented sales for many at the end of last year, revenue grew by 23% in the quarter. The Asia region excluding Japan generates nearly half of annual sales at the group.

Du Halgouet said tourist flows from mainland China had resumed to Hong Kong and Macau, boosting business there, as well as Singapore and Australia, and expected Chinese shoppers to return slowly to Europe towards the end of the year.

Stringent COVID lockdowns dampened luxury demand in China last year, when the market declined 10%, ending a five-year growth streak that saw the market double between 2019 and 2021, according to consultancy Bain. 

($1 = 0.9035 euros)