Hermès International Société en commandite par actions (RMS) Earnings Call Transcript

[Interpreted] Ladies and gentlemen, welcome to the quarterly information report of Hermes International. I'm now going to hand the floor to Eric du Halgouet, CFO, and and Alexandra Boucheron in charge of Investor Relations. Eric, Alexandra over to you.

[Interpreted] Good morning, one and all. Thank you very much for joining this call. Welcome. The group's consolidated revenue at the end of September 2026 amounted to EUR 12.3 billion, up 6% at constant exchange rates and 3% at current exchange rates compared to the same period in 2025. The Americas, Japan and Europe, excluding France, achieved particularly dynamic growth. Currency fluctuations represented a negative impact of approximately EUR 310 million on revenue Third quarter sales continued to grow in Q3, with sales reaching EUR 4.1 billion, up 4% at constant exchange rates and 6% at current exchange rates. In spite of macro economical and geopolitical difficulties, all regions posted growth with the exception of the Middle East. I would like to highlight that after a dynamic Q1, sales for the third quarter are equivalent in value to those for the first 2 quarters of the year, which speaks to the desirability of our collections, the loyalty of our customers and the robustness of our company. The group continued its operational investments globally in both production capacity and the distribution network. Over now to Alexandra, who will give you more detail on the performance by geographical area and by division.

[Interpreted] Good morning, one and all. We'll start with the geographical breakdown. The figures are presented at constant exchange rate. At the end of September, as Eric mentioned, all regions posted growth by the Middle East that recorded a slight drop. To start off, in spite of a more difficult environment in China, Asia, excluding Japan, continues to grow, driven by solid performance in Korea and a speed up in Singapore and Thailand in Q3. Greater China was stable across the period, which is very positive, given the backdrop. In April, the new Sanlitun store opened in Beijing followed by the renovated and extended stores of Hong Kong elements and SOGO Fuxing in Taipei. Finally, the Kaohsiung store in Taiwan and the Taikoo Li Mall store in Chengdu reopened after renovation and extension work. Japan next up 11%, confirms solid and steady momentum driven by the loyalty of its local customer base. The new store at Hilton Plaza East in Osaka was inaugurated in May after renovation and extension work before the opening of the new Nagoya location in June. Americas, plus 13%, achieved strong growth across all the countries and divisions. The San Diego store renovated and extended reopened in July, followed by the inauguration of new stores, the Plaza del Lago in Chicago and Williamsburg in New York. In Brazil, the Rio de Janeiro store also opened in August, an event dedicated to Petits creations was presented at the Ala Moana store in Hawaii in August. Europe, excluding France, is up 9%. So strong growth there, thanks to the dynamism of Southern Europe. The U.K. also recorded strong performance in the third quarter. driven by the opening of a new Maison at 166 New Bond Street in London successfully inaugurated on June 16. France, plus 2% is making progress, supported by the solid performance of seaside stores and the loyalty of our local customer base. Middle East, minus 4% continues to show solid resilience in a geopolitical context that remains complex. Let's now take a look at the different divisions, still at constant exchange rate. At the end of September, the Leather Goods and Saddlery division whose appeal remains as strong as ever, and the Silk and Textile divisions posted solid growth. Leather goods and Saddlery, plus 10% was remarkably good from a performance stand with strong desirability of both new models and iconic pieces. Our collections have been enriched with the Double Longe [indiscernible] the increase in production capacity continued with the inauguration of new workshops. And this dynamism shows that Hermes is unique. We are driven by the uniqueness of our know-how and by the loyalty of our customer base. We continue to grow our capacity with a 25th labor goods workshop in Lupron. 3 new leather good workshops will open in the coming years. Shale Meyer in 2027, Colombel, in 2028 and [indiscernible] by 2030. MMS thus continues to reinforce its footprint in France by developing employment and training in 11 regions across the country. The ready-to-wear and accessories sector is up 1%. Our ready-to-wear collections were very successful, including our show at the yard Republican, which speaks to the vitality of our offer. Silk and Textiles, up 7%, solid performance there as well. thanks to the richness of its creations in both women's and men's collections. The Care Cheval DeVito and Lenacage lend a modern twist to our iconic cars. Perfume and Beauty recorded a slight drop, minus 1%, with an improvement in the third quarter. The perfume collection was enriched by the new [indiscernible] solar signature, Barnier as well as Jensen Bieber. Hermes Beauty introduced a Lipare ritual with a mask and a BOM, which was met with immediate success. Watches, minus 2% continues to enrich its offering with, for example, the successful launch of the H8 skeleton model equipped with the latest generation titanium movement unveiled at the last April Watch & Wonders trade show in Geneva. We are continuing to grow our production capacity with the extension of the watchmaking site in or in Switzerland by 2028. Finally, the other sectors, so including jewelry and the home universe, are up 3%, which speaks to our uniqueness and the power of our creation. The jewelry collection into the [indiscernible] was successfully unveiled in early July in Paris at the Mussadi and will be also shown in Shanghai -- and was so sorry, in Shanghai in September. Thank you very much. And if you have any questions, do not hesitate.

[Operator Instructions] [Interpreted] And the first question comes from Anne Laure Bismuth from HSBC.

[Interpreted] Good morning. My first question is on leather goods? And my question is what was the driver of the speed up for each region? So what was the driver of regional growth for Lever in Q3? And in lever, we're looking at plus 3%, plus 6% volume increase. Is that still -- is that still a reality? And tell us about the trends in October? Do you think there'll be any changes? And can you give us some regional granularity, please?

[Interpreted] Well, good morning. For lever, there is no region that is driving the rest. It's pretty much balanced across the board, all regions grew for Q3 in this area? And the second question was what yes, on October and trend. No, there's no change in trends compared to what we have seen towards the end of Q3 for all the regions. The questions that are up in the air right now are mainly about France to know if recent developments will have an impact because of maybe future tourist flows that might be smaller, but we're not sure yet.

[Interpreted] Just a quick word on Lever and the increase in volumes. Could you confirm that we are plus 6%?

[Interpreted] While capacity has increased by 6% for 2026. So that, yes, indeed, remains unchanged.

[Interpreted] And the next question is from Erin Hamburg from Goldman Sachs.

[Interpreted] Hi, good morning. Thank you. First of all, I have a question on Europe, a France. I see that Europe is growing faster than Americas, which is surprising. Could you tell us to which extent London and the new opening is driving that? Or is it because American customers have come and bought items in Europe rather than in the U.S. I'm just trying to understand because I was expecting America to perform better than Europe, and that's not the case. Second question on your vision on what's happening in China. You told us Greater China was stable. So I imagine that China Mainland is slightly decreasing, and that's offset by growth elsewhere. But what is the most important factor. There was a new tax announced in July. There is the real estate sector. There is also concerns about unemployment. What do you think is the main driver affecting demand for luxury goods and Hermes goods more specifically?

[Interpreted] Thank you, Erwan. So first of all, on Europe. Europe grew 10% in Q1, 8% in Q2. So we continue to grow in a very consistent manner. All countries in the region are growing, which is great with double-digit growth in some countries such as Italy, for example, U.K., Spain, Turkey, Austria, Benelux, Portugal and Greece. So you can see that most countries, especially in Southern Europe, are driving this growth. Back to the specific example of U.K., we have a speed up in Q3, which is driven by, of course, the opening of the new Bond Street store. But it has exceeded, let's say, our expectations because this store is bringing in a higher revenue than the store that we closed and the previous 1 before. So we are not encroaching on the other stores in London and doing better than expected. And then the European clients are those who are buying in Europe. And if you look at people who are coming from outside of Europe to by -- in Europe, we have a few Americans for sure. And we also have a lot of Middle Eastern customers who are coming to Europe that was towards the end of the summer, which helped us improve our results in both Italy and the U.K. mainly. So solid growth. And when you -- when we look ahead, when we look at the next couple of weeks, we have the inauguration of the Geneva store, which is planned for early November. And then your second question was on China. First of all, it's worth reminding you that the macroeconomic context is not favorable. -- because real estate is down. Consumer trust in China is still quite low with a very high savings rate, and consumption, which is -- which remains unchanged. Now what made it a bit tougher is that financial markets dropped slightly over the last few months. So this can be one part of the explanation. And then there was this new tax that was introduced, which aims at taxing all offshore goods to the tune of 20%, and it's retroactive. So it's applies to the 3 previous years. It has retroactive effects. So that income has to be paid pretty quickly for the last 3 years. So yes, that might speak to the figures in China. But I think it's worth looking at the group's performance at the end of June was slightly growing in Greater China. And with this slight slowdown in Q3 we are pretty much stable compared to last year for Greater China. With a few developments, a slight improvement in Hong Kong, for instance, which remains a dynamic financial hub. Macau is a slightly different picture with clients that don't necessarily come from China Mainland. And then Taiwan, where the situation is a bit more polarized between traditional industry that is slowing and the tech industry, which is growing very rapidly.

[Interpreted] And just a final word on China. We remain confident on the potential of China for the mid and long run. We've got a very qualitative distribution network there with a few stores, but in good locations. We have 31 stores. And as you've seen, we've opened a new store this year, and we continue to renovate our distribution network.

[Interpreted] The next question is from Luca Solca from Bernstein.

[Interpreted] Good morning, Eric and Alexandra. My first question is on France. Could you please remind us what your exposure to France will be in Q4? And tell us about the stores in France, we've seen the demonstrations that took place last Saturday. So we'd like to try and work out the risk for French stores with the unrest for Q4. Second question now on China. Could you give us a bit more detail on what is currently driving your lower performances there. Is it a problem that has to do with footfall with fewer people going to the stores? Or has it more to do with the fact that the average basket is lower? Or is it something else? Because my feeling is that the tax that you mentioned earlier affects rich people. But when you look at the business side of things, we see that it's the more affordable products that are, in fact, slowing down. So I'm wondering what your rationale is to explain this?

[Interpreted] Okay. So first of all, on France, France is growing 4% for Q3, a lot of momentum on the French Riviera, Monaco, can but it was a bit slower in Paris, especially during the summer with a drop in footfall, which we believe is linked to the heat wave. Now when you look at our clients, you can see that our local clients are growing. And for the export side of things. We have a lot of momentum. We have a lot of European and American tourists that came to buy in the French stores. What we've also noticed and I spoke about this for Europe is that we have a Middle Eastern clients who are coming to Europe to shop, but they arrive towards the end of the summer and then left quickly after that. But we are not at the same level as last year for Middle Eastern clients. There is a slight drop in that area. The beginning of October confirmed this slight improvement that we saw in September after a month of August, which was quite slow for provision stores. Regarding China now, Oh, sorry, hold on. I forgot to answer your question on the recent demonstrations and events in Paris. First of all, we would like it to have afford for our clients and staff. And the first thing that we did was to protect our staff. And we have reinforced security and safety of both our staff and stores. Now it's too early right now to gauge the impact on our stores and even less on tourism. We haven't noticed anything different over the last couple of days. It's mainly our store in Marseille that was attacked, which will not be reopening anytime soon. But otherwise, we have very few damages. It's not [indiscernible] display windows that were broken, but nobody broke into these stores. So it's a bit too early to say what kind of impact that will have on our business in the weeks to come. Back to China now. What we see is it's the volume divisions that are suffering. So fashion accessories, for example, and also watches and shoes. These are the divisions, the immediate that are the most impacted. And it has to do with a drop in footfall that we have been able to offset with greater value, which is the strength of Hermes with other divisions like jewelry, leather goods and such like. But it's really a matter of footfall more than anything else and the volume-related [indiscernible] that's suffer the most.

[Interpreted] The next question is from Charles-Louis Scotti from Kepler.

[Interpreted] Thank you very much. My first question is on the U.S. How do you explain the sequential slowdown in Q3 in the U.S. growth is driven mainly by price and scope in the U.S. with new openings of stores. Or is it in fact driven by volumes? And then my second question is on the division other, more specifically jewelry. Is jewelry now down in Q3 even if fine jewelry compensated to that extent. So tell us about price and volumes for jewelry and fine jewelry.

[Interpreted] Thank you very much, Charles-Louis. So first of all, on the Americas, overall growth since the beginning of the year, speaks to a higher fall greater value, so a higher average basket and a conversion rate effect that is also more positive. There is no scope effect or very little because we've closed the Wall Street store in July, and we opened the [ Spoke 1 ] at the end of September. So there is no scope effect there. That growth was enjoyed by all the divisions. And when you take a look at the geographical breakdown, that growth was balanced out between East, West Coast, Mexico, Brazil, so across the whole region. Now the slowdown that you mentioned comes from 2 things. First of all, there's a basis effect. We were up 14% in Q3 last year, whereas we were at 12% for the beginning of the year. And there was a slight slowdown in August and in early September, part business is now back to the level of the beginning of the year. So there is no change in trend at the moment. The positive thing for the U.S. is that we are going to have a busy Q4 with Manaset and its opening. That's for the 29th of October. We have a craft in time event in Miami. And in November, we'll be displaying our new fine jewelry collection in New York. So this should lend more momentum to the U.S. in the final stretch of the year. And then your question on jewelry and fine jewelry. So what we see there is that we have successfully launched the ninth fine jewelry collection in July. And that collection will continue to travel around the world after Paris in July, it was Shanghai in September. And then it will be New York, as I mentioned a minute ago in November. The division was hit by the slowdown of Greater China. And if you look at the product breakdown, performance remains strong for silver, which is a division where Hermes has always been very good with a strong increase in volumes. And also good numbers for fine jewelry. So there is well the strong progress. There was a slowdown, as you mentioned, but that's mainly because of Greater China and the slowdown affected the intermediary products. But also you need to bear in mind that we are comparing this to high performances and high increases in the past. So you need to bear in mind that we have this high comparison point. So it is a slowdown in the numbers, but it's just a momentary dip, nothing more. So yes, for jewelry, we are very confident, and we have 2 avenues for growth. First of all, we're going to continue with our vertical integration to increase our production capacity and to grow fine jewelry. And then we continue to extend our stores precisely because we want to better show off our offering of jewelry and in fine jewelry, you probably have seen the Bond Street store where we have a beautiful area dedicated to jewelry and fine jewelry.

[Interpreted] And the next question is from Jan Danofrom.

[Interpreted] Good morning. Thank you. I was wondering if you have a comparison effect compared to 2025. And could you tell us about the surprising performance of Perfume and beauty? Could you give us some detail on why that performance has improved so much?

[Interpreted] Well, last year, growth for Q3 and Q4 was plus 10% and -- so it was already a dynamic division. But over and beyond the percentage, you have to look at the revenue for Q3 in value, which is the same as Q2 and Q1. And in Q1, just a reminder, there is the Chinese New Year. So strong momentum across the 3 quarters. For perfume and beauty, beauty performed really well with the launch of a new lipstick and a new range, [indiscernible] . And for Perfumes, there was the launch of [indiscernible] and us Pali, which is an encore fragrances that we only sell in the Hermes stores. And then we all launched Barena Planer recently. And another Hermes Mila. So there were a lot of launches for Q3 for perfume and beauty. The business remains very dynamic in our stores for perfume and beauty, mainly driven by the Hermes [indiscernible] range that I've just mentioned. It's a bit tougher or a different picture in the external network because a lot of the other players try to reduce their stocks. So we are being hit by that desire from the external distributors to reduce their stock. But our strategy remains unchanged. We're going to optimize our own distribution network. We have dedicated spaces to perfume and beauty to better display our offering that is now much broader and will get even broader with skin care and such like in 2028.

[Interpreted] The next question is from Thomas Chauvet from Citi.

[Interpreted] Eric and Alexandra, 2 questions. First of all, for prices in 2027, sorry, what is the price increase that you're expecting on the basis of the inflation of prices for materials, et cetera. I seem to remember that you talked about plus 6% or even more than that at the end of June. So please clarify on that? Secondly, on the scope effect, you gave us an estimate of 1% or 1.5%. That was for the impact on the store network. But with Beijing, Geneva, Bond Street, what kind of impact would that be in 2027? So how will these stores be impacted and especially Bond Street in 2027?

[Interpreted] Thank you, Thomas. So first of all, for our pricing policy, we're going to apply the same rule as usual. We are going to try and clarify our own costs. and to pass that on, at least for the Eurozone. So factoring the increasing cost of materials and payroll. So that's the first thing. And then secondly, we have to take into account the currency impact, which, as we mentioned, will be negative because of the depreciation of the yen because we are hedging gradually, but we haven't hedged for 2027 yet or at least not entirely. But I mentioned that the price increases will probably be slightly on the 2026 or 2027, but none of this is finalized for the moment. So we'll decide on price increases in a month or 2. Regarding the scope effect, we often have somewhere between 1% or 1.5% impact. But next year, we should not see any greater scope effect because there are no big openings like we have this year, Bond Street and Geneva.

[Interpreted] The next question is from Edouard Aubin from Morgan Stanley.

[Interpreted] Good morning, Eric and Alexandra. On ready-to-wear, I see that there's a drop in Q3. That's the first time in a decade, if I if I recall correctly. Eric, could you tell us why there is this slight drop? And what are you going to do to increase the desirability of ready-to-wear going forward? Question #2 now. You have a growth gap of 13% between leather goods and ready-to-wear. Are there regions where there are stronger discrepancies? Is there anything that you can say on that? And yes, that's it for my questions.