Hermès International Société

Ladies and gentlemen, welcome to the conference on the Q1 2024 Revenue for Hermès International. I'm now going to hand over the floor to Eric Duhal-Gouet, who is Executive VP of Finance for Hermès International, and Ms. Carole Dubon-Pietri, in charge of Financial and Non-Financial Communication. Over to you. Good morning, one and all. Thank you very much for joining us at this event. Sales growth has been particularly robust in Q1 2024. The group's consolidated revenue reached 3.8 billion at the end of March 2024, up 17% at constant exchange rate and up 13% at current exchange rates. All the regions have posted double-digit growth. This dynamic testifies to the loyalty of our clients across the world and the strength of the group's model and the desirability of our creations in a more complex environment. It also reflects our value-based strategy based on exceptional know-how, the finest materials and uncompromising quality. In Q1 2024, all the métiers confirmed this solid momentum and achieved good performances. The group continued with its investments in production capacity with four lever good workshops across the next four years, as well as in the other métiers and the distribution network. True to the Maison's social model, the group distributed 200 million euros in respect of the 2023 incentive schemes and profit sharing, and almost 100 million in group bonuses to all employees worldwide. And that came in addition to the sixth free share plan announced last June. Hermès continued accelerating recruitment and training to keep up with the growth in all the different métiers. For 2024, our outlook remains the same. In spite of global uncertainties, we are confident in the resilience and strength of Hermès. I'm now going to hand over to Carole for a breakdown of the different geographical areas and métiers. Thank you very much. We are going to now move on to the geographical breakdown, and the evolutions will be given at constant exchange rates. At the end of March 2024, all areas posted double-digit growth. The main trends are the following. Asia, exclusion Japan, plus 14%, pursued its growth in all the countries of the region. The desirability of the objects and the house's value strategy enabled to offset softer traffic in Greater China following the Chinese New Year celebrations. In January, the Wuxi Store, the 34th Hermès address in China, opened in the eastern province of Jiangsu. Japan, plus 25%, recorded an exceptional growth. thanks to the loyalty of its local customer base. A new store was inaugurated in February in Tokyo, in the district of Azabudai Hills, amidst a very welcoming and luminous interior. America's plus 12% posted a solid growth thanks to the good momentum in the beginning of the year. In March, the exhibition Hermes in the Making was toured in Mexico and the Parade event around the home universe was hosted in LA. Several projects are underway and the Princeton store in the US was inaugurated just yesterday. And finally, Europe excluding France, sales are at plus 15%, France plus 14% and have achieved solid growth. In France, the 14th edition of the Sault Hermès was successfully held at the Grand Palais Éphémère in Paris. Furthermore, our leather artisans Goldsmiths and the Ecole Hermès des Savoir-faire shared their passion for the finest materials at an exhibition in Paris during the European Artistic Craft Days. Now let's take a look at the métiers once again at constant exchange rates. At the end of March 2024, all the métiers confirmed solid momentum and achieved good performances. The leather goods and saddle remittier plus 20% for which the demand is very sustained with new models like the Arson, the Oa Courroie multi-pocket and the Constance Elan. The métier continues to showcase hand painting on the Berkine or embroidery on other models. We have four projects of new leather workshops in the next four years. Rion in the Puy-de-Dôme in 2024, L'Ilet d'Espagnac in Charente in 2025, Loupe in Gironde in 2025 and Charleville-Mézières in the Ardennes in 2027, which will reinforce the nine centres of expertise located across France. Hermès reinforces therefore its local anchoring in France and develops employment and training in France. The annual growth target remains unchanged. Now ready-to-wear and accessories plus 16%. The spring-summer 2024 ready-to-wear collections were warmly welcomed. The 24 Faubourg Saint-Honoré store in Paris presented the women's hors-série collection made up of exceptional pieces. Fashion accessories and shoes enjoyed robust growth displaying the abundance of the house's savoir-faire. Silk and textile sexta plus 8%, strong growth there again with new formats and outstanding materials. New investments will be taking place in the Pierre Benit site in Lyon in a new printing line. Perfume and beauty sector compared with a first quarter in 2024 which benefited from the launch of the Eau de Toilette Un Jardin à Citerre. The H24 men's line was enriched with Herbes Vives and the Hermesence collection which celebrates 20 years this year and unveiled a new Eau de Parfum Oud à l'Aison. Watches métiers plus 4%. continues its development. At the Geneva Watches and Wonders exhibition held in mid-April, Hermès presented Hermès Cut, a new creation featuring manufacturer movement. The other Hermès sectors, plus 25% with jewellery and home universe, pursued their strong growth, highlighting the full creative strength and singularity of Hermès, with, for example, the new creations in jewellery based on the chaîne d'encre The Equestrian Universe or the Kelly Lock in January. The Tressage Équestre tableware service was presented in Paris. Thank you very much and we're now at your disposal should you have any questions. Ladies and gentlemen, you can now ask your questions by typing a star and one on your dials. Please keep it to two questions. Our first questions come from Scotty Charlui from Cuperchevreux. Thank you very much for taking my question. I have two. My first question is on watches. For Q1, we see that the sector is doing quite well and it's been growing every year. Do you think that you can continue to gain market shares against your competition? And I'd like to know what the first feedback is on the Hermes Cut collection, which seems to have drummed up a lot of enthusiasm. Second question, on America, at group level, your growth rate at constant exchange rate is the same as in Q4 2023, but there is a... slowdown in the region. Can you tell us where this slowdown although a 6% growth is good and better than most of your competition? Thank you. Yes, well, thank you very much. Regarding watchmaking, there is indeed a slowdown of the market as a whole. You can see the Swiss exports actually slowing down. However, Hermès is more and more present on the mechanical high-range segment, and on that segment, which is the one that is resisting the most at the moment, we are making progress. And regarding the launch of the Hermès Cut in Geneva very recently. Well, this falls under that strategy. It's a mechanical watch. And if you look at the percentages, you'll see that last year, we had an excellent Q1 for watchmaking. So there's this basis effect, which is quite important. and some tensions on the production side of things. So that's it for Q1 2024. Now for the United States, America enjoyed a 12% growth and That growth comes from the 7% increase in prices, lower than the average increases, which were 8%, 9%. And that's due to the value of the dollar. So the volume effect is all the more important when you compare this overall growth and remove the price increase. No openings in Q1. And what is quite striking in this growth is that it was driven by all of the métiers, be it volume-based métiers or value-based métiers. So our growth is very healthy and is evenly distributed across all the markets. Now, footfall is quite stable in America. In Hawaii, we've noticed fewer people traveling, which probably explains part of that slowdown. However, on the East Coast, our stores in New York and on the West Coast are doing really well. And for a reminder, in the U.S., it is a market where we have full confidence for the midterm. And in China, we are continuing to opening new stores. Most of the openings are concentrated in the U.S. and in China. In the U.S., we are confident but will remain prudent for the second part of the year because of elections and the potential impact that this will have on our clients' behaviors. Thank you. Next question, from Bernstein. Hello, Eric and Carol. I've got a question because I'd like to better understand the changes in behavior in Chinese clients. We've seen a drop in the less affluent clients. Could you maybe enlighten us on that? And in a completely unrelated area, what is your timeline for experiments and tryouts for alternatives to leather? I see that you've collaborated with Macaworks for alternatives to leather and I was wondering if that was compliant with your quality standards and if you had a desire to launch goods with this alternative to leather. Well, thank you very much for the question. First of all, for Chinese clients, for continental China, there is a slight drop in footfall that came in March after the Chinese New Year celebrations. But this doesn't really have any repercussions on our numbers, figures, since it was offset by an increase in the average basket purchases. For example, silks and fashion accessories that are volume-based material were slightly impacted by this drop in footfall, but it was offset by a strong growth in leather, jewels, and women's ready-to-wear, with a great success for the exceptional items. That being said, I'd like to add that for continental China or greater China, we enjoy a double digit growth in Macau, Taiwan or continental China. The regions in which Chinese clients were present was mainly Europe, France, and Europe without France. And for the first quarter of 2024, we see that there is no significant evolution or changes in our Chinese client demographic. In other words, in Europe, it's mainly local clients but our exports clients is made up in the same way as q1 2023 with greater china south asia middle east and the americas and a quick focus in france now the client mix is quite balanced between greater china middle east america other european countries and south asia So no significant changes in the Chinese climate demographic. Regarding your second question now on research and innovation to find alternatives to leather. Well, we are continuing with such projects. We've got proofs of concepts which are making progress. But here we're going to remain true to our quality standards. And as soon as or rather until we don't find something that is satisfactory, we're going to make any launches. But we do continue to invest in these leather alternative projects, and we've got partnerships and four or five projects underway. But they are more medium-term projects than anything else. Thank you. Next question, Bismuth Al-Anlo from HSBC. Over to you. Good morning, Carol and Eric. Two questions. First of all, could you comment on the earlier trends of Q2 and give us a little bit of color for each region? Leather has grown by 20%. We know that there is a price effect at work there. with the price increases of 8% and 7% of volumes. So that makes up 15%. So what is the where does the 5% delta come from? And what can we expect for the rest of the year? And what does it mean in terms of client profile? Well, regarding the trends of April, it's too early to answer that question because we've only been able to see the first two weeks of business. The only thing I can say is that there is no exceptional or significant event. Everything is running as expected. For leather, we have 20% increase for Q1, but we can't extrapolate that for the whole year for a simple reason. It's that the Chinese New Year is always a peak in lever goods demand, and that's the extra five points that goes above our annual target. It's really the Chinese New Year effect. Price effect remains at 8%, 9% for the year, and volume effect, 7%. Our objective is 15% growth across the year, as you mentioned. Next question from Aubin Edouard Morgan Stanley. Over to you. Good morning, Eric et Carole. Just to go back to growth in the lever métier, could you tell us about the level of stocks at the end of March? Of course, we don't have a detail for each category in December, but at group level, at the end of the year, as I recall, you had higher stocks compared to the previous year. So can you tell us a bit more about your stocks at group level and in lever goods particularly? And then when we look at aspirational categories at Hermès, we see that there is a strong growth in Q1, which is honourable, but it is slowing down compared to the previous quarter and slower than lever goods. So what's your take on this relative drop in performance between lever goods and non lever good products? Stock levels at the end of Q1 are relatively homogenous across all of the regions, maybe a little bit lower for Greater China because of the Chinese New Year celebrations. And we will deliver to China to make up these stocks across the year. Now, for the other métier, there is no overstocking. There is no scarcity either. We are very much on track with our plan. You know that our products are bought at the podium events and we are delivering what was bought at the podium events on time for ready to wear. It's important to deliver these products at the very beginning of the season. So that they can be sold to our clients on time. Now there is indeed a small drop in silk and fashion accessories. And that kind of ties in with what I said earlier. i.e. the slight drop in footfall in China that affected this aspirational demographic of our client base. And it's really down to Greater China that's a drop for Q1. Thank you. And now questions in English. Sabrina, over to you.

The next question is from Ashley Wallace of Bank of America. Please go ahead.

Oh, hello. Thank you, Carol and Eric. I have two questions, please. The first one is just within the leather division. I was wondering if you can share some high-level comments between what percentage of revenue now comes from the Kellyanne Birkin versus the other leather lines and how that compares to, say, five years ago. And then my second question is just around cost inflation. I know this is a sales call, but how should we think about cost inflation at Hermes in 2024? How much cost growth do you budget for this year, essentially, considering the top line is quite strong?