With the release Hermès’ FY23 results today, we have now seen the release of most of the major luxury firm’s results this earnings season. We still have a few to go, but we can start to draw some lessons. Going into earnings season, the markets expected that macroeconomic headwinds would disadvantage soft luxury and brands dependent on aspirational consumers. This hypothesis has been broadly confirmed: Richemont, with its stable of watch and jewelry brands, gave us an upside surprise; Kering commented that its poor results resulted from slowing demand from aspirational consumers; high price pointed Brunello Cucinelli and Ferrari were spectacular, and LVMH, which is so heavily diversified across most fashion luxury verticals with its 60 subsidiaries, was resilient.
In Hermès, we have a soft luxury goods specialist whose price points are better aligned with high-net-worth households. And Hermès’ consumers massively delivered with full-year earnings growth of 21 percent, at constant exchange rates, with gross margins growing by just under 2 percentage points at 72.3 percent.
Unlike most of its competitors, Hermès delivered strong growth across all geographies with the contribution of growth from Asia (40 percent), the Americas (19 percent), Europe (13 percent), Japan (10 percent), and France (10 percent) remaining almost unchanged from last year. Even LVMH did not deliver double digit growth across all of its product lines like Hermes.
This has paid off for investors with dividends growing by over 60 percent and dividends per share up over 15 percent.
The market expects that earnings will slow to around 7 percent in FY24, but this seems unjustifiably pessimistic given Hermès’ position in the price-volume-mix triangle. Hermès has powered past most of its competitors in the luxury bull market of the past few years by wielding pricing power while maintaining strong volume growth with a revenue-enhancing mix of products. With Hermès expected raise prices between 8 and 9 percent this year and a product mix that is already tilted towards more resilient consumers, we expect double digit growth next year.
Valuations for Hermès are pretty eye watering with a P/E (NTM) ratio of 52.7x as compared with 24.9x for LVMH and 20.0x for Richemont. Among the FSW High Frequency All Luxury Index constituents only LVMH constituent Christian Dior and Brunello Cucinelli have richer valuations.
Hermès’ share price is up over 10 percent on the day with a total return of over 15 percent year-to-date.