Hermes, the French luxury house known for its Birkin and Kelly bags, reported a slowdown in third-quarter sales that fell short of analyst expectations. The company cited a sharp deterioration in demand from China, its largest market, which dragged its ready-to-wear and accessories division into its first decline in years.
In currency-adjusted terms, Hermes posted €4.10 billion ($4.6 billion) in quarterly sales, a 4.3% increase from a year earlier. That was below the 5.2% growth that analysts polled by Visible Alpha had expected, and it marked the brand's weakest quarterly growth rate since early 2020, when pandemic shutdowns forced boutiques to close.
China's slowdown hits entry-level items
The pressure point was China, where CFO Eric du Halgouet said demand softened by late September. He attributed the 2% drop in ready-to-wear and accessories mostly to slower demand for higher-volume "entry" items like belts and hair clips. These products are often a first purchase for new customers, making them a key gateway to the brand.
Other categories proved steadier. Leather goods sales still rose 10.8%, and management sounded relatively upbeat on the US, where Hermes has been opening stores in smaller cities. But the update, coming on the heels of a downbeat quarter from rival LVMH, reinforced the idea that even top-tier luxury brands may not be immune if Chinese spending stays cautious.
What it means for investors
The 2% decline in accessories may seem small, but it carries outsized weight for Hermes' valuation story. Leather goods keep growing, but accessories are higher-volume and often where customers first try the brand. If that entry lane is weakening in China, fewer new shoppers may move through to repeat, higher-margin purchases later on. That can slow future growth even if the Birkin-and-Kelly end stays resilient.
That's why small misses can trigger outsized moves in the stock. When investors start doubting how "durable" Hermes' growth is, they tend to pay a lower premium for the shares, making it trade more like the broader luxury sector. Reuters noted that Hermes shares fell about 5% in early trading, a reminder that the company's lofty valuation leaves less room for disappointment.
For everyday investors, the takeaway is that even the most resilient luxury brands are feeling the chill from China's economic slowdown. The country has been a growth engine for luxury goods for years, but a property downturn, youth unemployment, and cautious consumer sentiment have curbed spending on high-end items. This is not just a Hermes problem; it's a sector-wide trend. As seen with LVMH's recent miss, the pain is spreading across the industry.
Investors should watch whether Chinese demand stabilizes in the coming quarters. If it doesn't, even the most defensive luxury names could see their growth premiums shrink. On the other hand, Hermes' leather goods resilience suggests that its most iconic products still have strong appeal, which could cushion further declines.
For now, the message from Hermes is clear: no brand is immune to a cautious Chinese consumer. The question is how long the caution lasts.
