(News Bulletin 247) – Like LVMH, the luxury group’s activity outperformed expectations in 2022. Hermès’ turnover exceeded 10 billion euros for the first time, thanks to the dynamism of its sales in China. To meet strong demand, the company will inaugurate two new leather goods stores in 2023.

A few weeks earlier, LVMH had announced record results with 14 billion euros in profits for the year 2022.

Hermès, another French luxury champion, does not have to be ashamed of the service delivered by the world number one in the sector. The manufacturer of the Birkin bag has also announced quality results that exceed expectations.

In 2022, the company’s sales slightly exceeded expectations at 11.6 billion euros, up 29.2% as reported and 23.4% at constant exchange rates. The consensus compiled by Factset expected, in fact, a turnover of 11.45 million euros.

At the end of December 2022, sales recorded significant increases in all the geographical areas where the group is present. Quoted by AFP, manager Axel Dumas admitted that he has “a little trouble finding an area that is not going well”, during a conference call with journalists.

A jump in sales in China despite the pandemic

Sales in the Americas zone jumped by 32% at constant exchange rates, to exceed 2 billion euros to 2.14 billion euros. In France, business grew by 27% on the same basis, marked by an acceleration at the end of the year, thanks to strong local and international demand.

In the Europe zone (excluding France), sales increased by 18% to 2.6 billion euros, driven by “local customer loyalty” and the resumption of tourist flows. In Asia-Pacific (excluding Japan), sales increased by 22% at constant exchange rates to 5.23 billion euros.

In this region, Hermès managed to hold its own at the end of the year, unlike its competitors LVMH or Kering. For the latter, sales of its flagship brand Gucci were heavily penalized at the end of the year by the pandemic in China.

The saddler has not experienced such difficulties and has seen its sales jump by almost 25% at constant exchange rates in the region over the last three months of 2022. “The main highlight for us has been the ability to Hermès to decouple from fourth quarter industry trends in Asia Pacific and America,” Stifel said.

According to the research department, analysts on average expected an increase of only 15% on a like-for-like basis. “We continued to have a strong desirability of the house in China in the fourth quarter,” said Axel Dumas, still quoted by AFP.

By division, “leather goods and saddlery” and “clothing and accessories”, the two most important of the luxury group, experienced respective growth of 15.6% and 35.8% at constant exchange rates, in 2022. To meet the strong demand for leather goods, Hermès will inaugurate two new leather goods shops in 2023, one in Louviers in Eure, and the other in La Sormonne in Ardennes.

As for other indicators, the manufacturer of the Birkin bag exceeded expectations. Current operating profit increased by 33% and amounted to 4.7 billion euros against 3.53 billion euros in 2021. “Thanks to the leverage effect generated by strong sales growth and the exceptional performance collections”, the annual current operating profitability reached its highest historical level at 40.5% against 39.3% in 2021.

The operating profit is 3% higher than the consensus while the current operating margin is “comfortably higher” than expected, specifies Stifel in its note devoted to Hermès.

Consolidated net income group share reached a record level of 3.37 billion euros compared to 2.44 billion euros in 2021, an increase of 38%.

Shareholders will benefit from these quality results. A dividend of 13 euros per share will be proposed at the next general meeting. The consensus anticipated the payment of a dividend of 12.2 euros per share. But for Citi analysts, Hermès should have been more generous given its record cash position, reports the Bloomberg agency quoted by AFP.

“Best in class fundamentals” for Stifel

As usual, the group did not give any quantified perspective. Hermès merely confirmed its medium-term outlook of an “ambitious objective of increasing turnover at constant rates”, in a context of economic, geopolitical and monetary uncertainties.

“The group is approaching the year 2023 with confidence, on the strength of its highly integrated artisanal model, its balanced distribution network, the creativity of its collections and the loyalty of its customers” adds Hermès by way of outlook.

“Hermès’ high valuation multiple is supported by best-in-class fundamentals and the stock’s upside potential, based on above-trend single-digit price increases, the re-opening of the Chinese economy, the high and enduring brand desirability in traditional and emerging markets, and proven resilience in recessionary times and greater P&L flexibility than its peers,” concludes Stifel.

On the Paris Stock Exchange, Hermès is down (-1%) in a Parisian market that is taking a breather after its records the day before. However, the title has gained nearly 20% since the start of the year with a historic high of 1,778 euros recorded on February 3.