Hermes, announced its intention to further increase prices as its sales outpaced those of luxury competitors by the end of 2023, resulting in a surge in shares for the renowned Birkin bag maker to a historic high.
The esteemed luxury brand aims to raise prices globally by approximately 8% to 9% this year, as disclosed by Hermes Executive Chairman Axel Dumas during a briefing with journalists on Friday, subsequent to reporting sales amounting to 3.36 billion euros ($3.62 billion) for the three-month period ending in December.
This exhibited a surge of 17.5% at fixed foreign exchange rates, surpassing analyst predictions for a 14% expansion, as indicated by Visible Alpha consensus estimates.
“Hermes is playing in a different league,” remarked JPM analysts in a note.
“Hermes comes in today showing, in our view, what a real over-delivery is about,” they continued, emphasising the brand’s robust momentum and substantial cash returns to shareholders.
The French conglomerate has emerged as one of the most resilient performers in the luxury goods sphere, even amidst economic downturns, owing to its timeless designs and meticulous management of production and inventory, which have preserved the brand’s aura of exclusivity.
Hermes implemented a global price increase of around 7% last year to accommodate heightened production costs, with exceptions made for the United States, where increments were approximately 3%, and Japan, where they soared to double digits due to currency fluctuations.
The price adjustments, primarily enacted at the year’s commencement, reflect input expenses such as labour and raw materials, in addition to fluctuating exchange rates, as stated by company executives.
Hermes also announced its intention to grant a 4,000 euro bonus to each of its over 22,000 employees worldwide.
Dumas stressed that pricing was not the primary lever, asserting: “We don’t steer group growth through pricing strategies.”
Despite Chanel, Dior owned by LVMH, and Louis Vuitton raising handbag prices more aggressively since the onset of the pandemic, Hermes maintains dominance in the upper echelons of the market.
Hermes witnessed robust growth across all regions, particularly noting a dynamic performance in China, amidst concerns among investors regarding a sluggish post-COVID recovery.
The brand boasts a higher valuation than its counterparts, with a 12-month forward price-to-earnings ratio based on projected earnings of 48.6, as per LSEG data.
This contrasts with LVMH at 24.8 and Kering at 16.5.
Handbags such as the coveted Birkin model, priced at over $10,000, remain within reach only for shoppers typically more resilient to uncertain economic conditions.