Hermès sales rise despite slump in luxury demand. Why did the stock fall after the report?

Sales at French fashion house Hermès rose 9% in the second quarter despite a sharp slowdown in global demand for luxury goods. The growth was driven by strong demand for its iconic Birkin and Kelly bags, which remain status symbols for affluent shoppers. Despite the positive report, Hermès shares fell more than 4% in Paris trading. Citigroup analysts believe the company is still outperforming the market but warned of the risk of overvaluation without accelerating earnings, Bloomberg writes.

Hermès reported revenue growth of 9% in the second quarter of 2025 (at constant exchange rates), beating analysts' expectations of 8.9%, reported Bloomberg. Total sales amounted to 3.9 billion euros, with growth recorded in all regions. 

Hermès' business model, with an artificially limited supply of iconic Birkin and Kelly handbags that continue to be in demand among affluent audiences, has contributed to the success. At the same time, sales of clothing and silk slowed, while the perfume and cosmetics segment showed a decline, reflects Reuters. 

Hermès' sales growth came amid a sharp decline in demand in China - a key market for the company - due to tighter controls on show consumption, Bloomberg points out. The fashion house's sales in the region, which accounts for 45% of its total revenue, rose 5.2%. That contrasts with rivals' results: sales Gucci collapsed 25%, while apparel and leather goods sales  LVMH were up 9%. 

According to Hermès executive chairman Axel Dumas, traffic at Hermès stores in China remains low, but the average check is higher. He also said Hermès will not raise prices in the U.S. for now, despite geopolitical instability and 15% trade duties on EU goods. Hermès already raised prices for the U.S. by about 5% in May. 

Hermès shares were down 4.7% in early trading in Paris on July 30, their biggest drop since May. Before Wednesday, they were up 2.4% since the start of the year, while shares of its main rival LVMH were down more than 25%, wrote Bloomberg.

In April 2025, Hermès surpassed LVMH and ranked first in capitalization  among corporations listed on France's CAC40 stock index and became the third-largest publicly traded company in Europe, counted Bloomberg. The company maintains tight control over production, ramping up just 6-7% annually, stated Reuters. 

Citigroup analyst Thomas Chauvet said Hermès securities still look stronger than rivals, but the high valuation premium calls for further earnings growth, writes Bloomberg. 

According to Third Bridge analyst Yanmei Tang, Hermès' strategy of betting on exclusivity, craftsmanship and sustainable brand value rather than volume is particularly relevant at a time when consumers are becoming more selective and emotionally engaged, points out WWD. 

According to an estimate by Bernstein, sales in the luxury industry as a whole will remain flat in 2025 - which is unusual: the sector has traditionally grown twice as fast as the global economy. This is the second consecutive year of weak demand: 2024 was the industry's worst year since the 2008 global financial crisis - and all without an official recession, writes The Wall Street Journal. 

UBS analysts tracking Europe's leading luxury stocks note: after two years of expecting a recovery, "investors are beginning to doubt the long-term structural attractiveness of the sector". Generation Z is particularly worried: in 2024, their spending on luxury is down 7% - minus $5.7 billion and the biggest drop of any age group. Young people are disillusioned with the industry after high-profile publications about problems with supply chains and inflated markups - these topics are actively discussed on social networks, noted analysts Bain & Company. 

This is not the first crisis in the luxury goods industry. In 2015, consumers got tired of logomania, and brands relied on understated designs, such as Louis Vuitton's Capucines. It successfully regained the audience's interest, the WSJ recalls. 

The biggest players have one advantage: multi-billion-dollar advertising budgets, WSJ adds. In addition, this year the industry is expecting a wave of renewals: dozens of top brands have changed creative directors and will soon present fresh collections;

But the challenge is greater, the WSJ emphasizes: the luxury industry has grown by 50% in the last 10 years. Even if new designers catch the desires of the younger generation, scaling growth will be much harder than before - and shareholders should be prepared for that.

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