Hermes accelerated sales growth while maintaining its status as the strongest in luxury. Why did the stock fall?

French luxury brand Hermes reported sales growth of almost 10% in the third quarter, exceeding analysts' expectations thanks to strong demand for its iconic Birkin and Kelly bags in the US and China. The results from the brand, which is coping better than other luxury giants with the market slowdown, reflect the resilience of the popularity of high-end luxury goods, the WSJ wrote. At the same time, expectations for Hermès were even higher, but failed to materialize: it led to a drop in the stock.

French company Hermes International SCA, the maker of iconic Birkin and Kelly handbags, reported revenue growth of 9.6% (at fixed exchange rates) to €3.88 bln. This was slightly below the Visible Alpha consensus forecast of 10%, Reuters reports citing UBS. The pace of revenue growth accelerated compared to the previous quarter (+9%).

At the same time, Hermes' main source of profit - the leather goods division - showed sales growth of 13.3%, which was slightly below analysts' expectations (+13.8%), Bloomberg noted. Management attributed this to insufficient inventories and promised to increase them by Christmas and Chinese New Year, Reuters reported. Sales of perfumes and beauty products aimed at a broader audience fell 7.2%, reflecting pressure from "affordable luxury" shoppers.

The stock was down nearly 5% at one point in trading on Oct. 22, but then slowed its decline to about 2%. Jefferies analysts said some investors find the company's traditional stability "not exciting" compared to "overcoming stories" at other market players, Reuters reported.

Sales in both Americas rose 14%, helped by a rebound in demand in the U.S. Hermes opened a new boutique in Nashville and intends to continue investing in the U.S. market, Reuters reported. Meanwhile, the company did not raise prices in the U.S. after a 5% indexation in May aimed at offsetting tariff costs, Bloomberg noted.

In Asia Pacific (excluding Japan), revenue was up 6%, especially in mainland China. Hermes CFO Eric Du Algue said the company sees two reasons to be optimistic about the Chinese market: the strengthening stability of the real estate market in major cities, and the rise of financial markets in both the mainland and Hong Kong, Bloomberg reported.

Earlier, LVMH and L'Oréal gave similar signals about stabilizing demand in China.

Hermès remains one of the most resilient companies in the sector, Reuters emphasizes. Its business model of limited supply - when demand consistently exceeds supply - allows it to maintain high margins and protects it from the volatility of the mass consumer.

Citi analyst Tom Chauvet noted that Hermes became the third luxury company to show consistent year-on-year revenue improvement, which may indicate a "pivot point" for the entire industry, The Wall Street Journal reported. On the other hand, investors were expecting more from Hermes' reporting after LVMH's successful results, the newspaper reports Deutsche Bank's opinion. LVMH's reporting on October 15 caused the sector's capitalization to grow by $80 billion.

Hermes in April 2025 surpassed LVMH in terms of capitalization and became the most expensive company in the luxury sector, but then lost the leadership again. Since the beginning of the year, Hermes securities have fallen in price by 5%, while LVMH has lost 2.4%.

Hermes stock has a total of 23 ratings from analysts and the most popular recommendation is Hold (12 Hold), FactSet shows. Another ten advise buy (seven Buy and three Overweight) and one advises sell (Sell). The average target price is €2420.86, about 10% above the current price.

This article was AI-translated and verified by a human editor