Even Hermès buckled: down 14% in a morning, its lowest since January 2023

Hermès led a slump in luxury shares after weak sales showed the war in Iran was weighing on Middle East demand and European tourism, dealing a blow to hopes of a sector revival.

Shares in the Birkin bag maker sank as much as 14% in early trade, to their lowest since January 2023, before recovering slightly to be down 9% at 0850 GMT, bringing losses this year to 24%. Kering shares fell more than 9% the same day after reporting the war had hurt spending, chiming with LVMH, which said on Monday it had suffered a sharp slowdown in the region. Luxury stocks have grown more volatile as hedge funds ramped up bets in the sector.

Hermès, which carefully controls production and sales to maintain exclusivity, had been the most resilient luxury group through the industry’s years-long slowdown — but even it was not immune. First-quarter sales of handbags, silk scarves and perfume rose 5.6% in currency-adjusted terms, below a Visible Alpha consensus of 7.1%. Deutsche Bank analysts said that implied “zero underlying volume growth,” given Hermès raised prices 6% at the start of the year.

The conflict took 1.5 percentage points off quarterly sales growth, finance chief Eric du Halgouët said. Middle East sales fell 6% in currency-adjusted terms to €160 million, from €185 million a year earlier. “We had very good growth, double-digit growth in January and February and then the month of March was an abrupt halt,” he said, adding that sales in luxury malls in Dubai and other Gulf hubs dropped 40% in March. The region accounts for only 4.4% of sales, though it was Hermès’ fastest-growing last year. The profitability impact is “not significant” for now: “It will depend on whether this lasts another month or two… if it’s a two-month affair I think we can still absorb this impact without too much trouble.”

The strong euro is a separate headache: it took €290 million off revenue in the quarter, leading to a 1% drop in reported sales to €4.07 billion from €4.13 billion.

The house, which caters to the ultra-wealthy with handbags over $10,000, said falling tourist numbers hit sales in concession stores at airports and in the Middle East, as well as in France, Britain, Italy and Switzerland, where Gulf shoppers are a key driver. In France, where more than 50% of sales are to tourists according to Du Halgouët, revenue declined 2.8%. In Asia, the biggest region by sales, revenue grew just 3.5% in currency-adjusted terms as air travel disruption hit stores, particularly in Singapore and Thailand.

The US was the bright spot, with currency-adjusted sales up 17.2%.