Hermes International (RMS) will report its full-year earnings for 2023 on Friday, February 9, 2024.
The leading brands in the luxury space have outperformed the rest of the industry for most of 2023. In the six months leading up to October 2023, Hermes recorded like-for-like revenue growth of 21.7%, compared with 16% for the Fashion & Leather division of LVMH (MC) and 12% at Richemont (CFR).
Whilst analysts believe sales growth for Hermes will have slowed down in the fourth quarter of 2023, it is still expected to remain in the double digits. The final figure will depend on the ability of the company to satisfy demand with additional production capacity, and on Chinese consumers returning to its stores.
Key Morningstar Metrics for Hermes Shares
Fair Value Estimate: €1,270
Current Price: €2,032
Morningstar Rating: ★
Morningstar Economic Moat Rating: Wide
Morningstar Uncertainty Rating: Medium
What to Expect from Hermes Earnings
According to Factset consensus data, Hermes revenue is expected to reach €3.28 billion in the last quarter of 2023 (up 12.8% on a like-for-like basis), which would lift full-year 2023 sales to €13.35 billion, compared to €11.60 billion in 2022.
“Hermes should have experienced some store traffic normalisation in Asia Pacific in 4Q23, where Hermes laps much tougher comparatives than its peers (especially in China),” analysts at Stifel wrote in a recent report. While the company will have tough comps to beat in France and Americas, Stifel still expect Hermes to have substantially outperformed the sector.
Operating income should reach €5.51 billion (17.3% higher than the 2022 result) with net income at €4.05 billion, or €38.66 a share.
Analysts at JPMorgan expect group EBIT to go up 17% year-over-year to €5.50 billion, “implying H2 EBIT up 7% with margin down 60 basis points year-over-year to 38.5% (41.2% on the FY)”.
Hermes Stock: Should I Buy, Sell or Hold?
Hermes shares are among the most expensive in the industry, trading at a price to earnings multiple of 48x, compared to a median P/E ratio of 21x for the luxury industry and 13x for the European market.
After its share price strongly outperformed the rest of the market last year (+33%), investors will need to feel more comfortable with the management’s comments on its sales and earnings outlook this year to continue bidding up its share price.
One driver of continued outperformance could come from Hermes’ ability to broaden its product offering without damaging the goodwill of its brand.
So far, “the brand’s product lines have been much more coherent with the overall brand identity,” analysts from Morgan Stanley wrote in a report published on February 7. “We think Hermes has a major long-term potential to extend its product range and exposure to a number of verticals,” like make-up and skincare, they add.
Another outperformance driver could be the range of price increases the luxury company might announce. While not the most important driver of sales growth, price increases have usually been used to compensate for the negative impact of currency volatility in certain geographies, notably Asia-Pacific and the US, which accounted for 75% of total revenue in the first nine months of 2023.
Morningstar’s fair value of €1,270 per share, which implies a 9% annual revenue growth over the next 10 years (from 2022), thanks to “stronger-than-peer pricing power” and the continuing rising demand of high-net worth individuals. The rise of the middle class in China will also fuel future growth, according to Morningstar’s equity analyst Jelena Sokolova.
