Hermes Intl Sa Unsp/Adr

And gentlemen, welcome to the Q3 2024 revenue publication of Hermès International. The floor is now to Éric Duhalguet, CFO of Hermès, and Miss Carole Dupont-Pietri, Head of Investor Relations. Over to you, Carole and Éric. Thank you very much. Good morning to all. It's a pleasure to welcome you to the Q3 publication. The group's consolidated revenue amounted to 11.2 billion at the end of September 2024, up 14% at constant exchange rates and 11% at current exchange rates. At the end of September 2024, currency fluctuations represented a negative impact of 242 million on revenue. All regions are growing despite a particularly high comparison basis in Europe and Asia-Pacific. In the third quarter, sales continued to rise. and reached 3.7 billion euros, up 11% at constant exchange rates. Revenue for Q3 is slightly above Q2 figures and close to Q1 figures, during which the Chinese New Year takes place. Hermès continues its long-term investments, which will probably exceed 1 billion euros this year, mainly in production capacity and the distribution network. The group continues to create jobs and to roll out its various training programs to follow the growth of the métier, with 2,000 new recruitments planned for this year. And you'll recall that Hermès created 5,400 jobs over the last three years, 60% of which in France. For 2024, our outlook remains unchanged. In this more complex environment, we are confident in the robustness and momentum of the Maison Hermès. Over to you now, Carole. Hello to all. Let's now take a look at the geographical breakdown of our activity, and the evolutions are at constant exchange rates. Solid growth posted by all the regions by the end of September, as Eric mentioned, Asia, excluding Japan, posted 7% growth, supported by solid sales in Korea, Singapore, Australia and Thailand. The region is growing in the third quarter, despite the downturn in traffic in Greater China observed since the end of the Chinese New Year. The Shenzhen store in China reopened. following the Lee Gardens store reopening in Hong Kong in June. And in August, the Collins Street store in Melbourne reopened after renovation. Japan plus 23% after an excellent third quarter. confirmed its strong growth thanks to the loyalty of its local clients. The new Ginza Mitsukoshi store was inaugurated in Tokyo in June after the Azu Dubai Hills store in February. The Americas, plus 13%, continued their solid momentum in the third quarter, with growth close to the previous two quarters. Several projects are underway, including the Atlanta store inaugurated end of October. Europe, excluding France, posts plus 18% growth, remarkable for performance, notably in the third quarter. thanks to solid local demand and continued dynamics of tourist flows in all the countries. And France, plus 14% after sustained growth in the third quarter, confirmed its momentum despite a slight slowdown in traffic in the Prussian stores due to the Olympic Games. Now, let's take a look at the sales sector by sector. All the métiers, with the exception of watches, posted solid growth. Lever goods and salary are at plus 17%. The annual growth target remains unchanged. Demand remains sustained for both iconic models and for new models. Production capacity continues to increase with the opening of the 23rd Lever Goods Workshop in Rion in the Puy-de-Dôme in September. This new facility reinforces the company's nine centres of expertise located across France. We have three other projects underway at Lille d'Espagnac in the Charente region and Charleville-Mézières and another one that will be completed by 2027. Hermès therefore continues to create new jobs and reinforces its footprint in France. Now, the ready-to-wear and accessories sector posted a plus 15% worth of growth. The men's Spring Summer 2025 fashion show was held at the Palladina in June and was very well received, as well as the women's Spring Summer 2025 collection, which was presented. at Descartes Républicaine. Silken Textiles, plus 2%, grew in the third quarter. The new printing line in Pierre Benit, Lyon, is up and running since the summer. Perfume and Beauty, plus 7%. In September, Hermès successfully launched the new women's perfume Barigna, imagined by Christine Nagel. enriched its offering with the second part of Le Regard, the Très d'Hermès, composed of pencils for the eyes and lips. In a more challenging context, the watch's métier posted minus 6% growth and was penalised by a high comparison base due to exclusive events in the third quarter last year. The other Hermès sectors are at plus 17%, so including jewelry and the home universe. The eighth fine jewelry collection, Les Formes et les Couleurs, was presented in September in Beijing after Paris in June. Thank you very much, and I'm happy to take your questions. Ladies and gentlemen, you can now ask your questions by dialing star 1 on your telephone keypad. Please, no more than two questions for each speaker. And the first question is from Luca Solka from Bernstein. Over to you. Luca Solka from Bernstein. Over to you. Hello, Eric. Yes, hello, Eric and Carol. Two questions on my side. Could you maybe tell us a little bit more about the dynamic and the nationality breakdown? Because you're telling us that there hasn't been any huge changes between Q2 and Q3. America's apparently seem very dynamic, but could you maybe tell us a bit more about Chinese consumers and also European consumers and what are the trends for Q3 for consumers in the different regions? And my second question is mainly about watches. Are you planning to intervene in one way or the other? Have you got anything in mind to try and improve the dynamic of this category? And in another category, silk, often we see that Hermès sells to wealthy clients, but silk, shows us that aspirational clients continue to like the brand and to buy these, let's say, cheaper products. So how do you explain the strength of the silk category and its robustness? Okay, so first of all, Luca, on the breakdown for nationality, I'm going to start off with France. There is a slight increase in foreign customers for Q3, close to what we saw in Q2, and that increase is mainly driven in France by clients from the Middle East and America and other European countries. However, we do see a small dip in clients who come to France from greater China. So that's for France. Now, when you look at Europe, it's pretty much the same trend, whereby there is a slight increase in foreign clients who come from the U.S. and the Middle East, and once again, a small drop in the number of clients there. that come from China to other European countries. That's it for the two main areas that are exposed to foreign clients. And as you'll know, in the U.S., our growth is very consistent with plus 13% for each quarter with clients that are in large part American in America. And your second question on watches, I'd just like to give you a little bit of background. Over the last three years, so 22, 23, 24, our growth has been around 23%, 46% as if my memory serves. So we've always performed really well compared to the rest of the industry. What is factually true is that we held an event in China last year, which was called Crafting Time. And this was an event during which we sell a lot of watches. That took place in September last year. And this year, it will take place in November. So that might explain, to some extent, the drop that you've seen. Nonetheless, there are a few things that we need to deal with when it comes to our product offering. And we'll be dealing with that shortly. And it's also worth noting that the sector as a whole is slowing down with a number of exports of watches from Switzerland that is slowing down for everyone. And then for silk, why is silk performing so well with aspirational clients? Well, I think it's mainly down to the creativity of the designs, the changes in the products and new formats with the Twilly, the Maxi Twilly, and the two-side printing as well. So very dynamic, very creative designs. and also a great know-how. So we continue to invest in silk with a new production line at Pierre Benit Lyon, and we believe that even if this particular métier has suffered in China, we believe that still it has a huge potential for growth going forward. Thank you, Eric. Next question from Scottish Aloui from Kapler Chevreux. Over to you. Good morning. Thank you very much for taking my two questions. First of all, a question on jewelry. It's another sector which is growing quickly during Q3. Can you maybe help us understand the strong performance of jewelry and fine jewelry? What are the drivers behind this growth and why is it resilient in the current context? And then second question, this time on the profitability margin of the group in 2024. Since organic growth is slowing down in the second half, and you told us that foreign exchange impacts will be stronger in the second half of the year. So are you still comfortable with the 40% margin that you once floated? Well, regarding jewelry, There are three segments, fine jewelry, silver, and gold. Gold makes up the major part of the volumes, but all three segments are growing. Hermès offers fine jewelry collections every two years, and these fine jewelry collections increases, of course, proportionately, but it's not the main driver of growth. And now on the second question, this time it's Carole on the annual margin. There are no significant changes on the drivers, so no major changes to be expected here. Eric reminded us of the... exchange impacts for the second half of the year. The rest of the impacts are quite similar, with an increase in communication expenditure. We mentioned 650 million for the whole year, 250 front-loaded to the first half of the year, and a capex which should be in excess of 1 billion euros, but the rest remains unchanged. And as you can see, all of our geographical areas are, you know, in line with the provisions, bar Greater China. So no one has canceled communication events. And we continue to increase our headcounts in the métiers, strong growth in that area over the last three years. and new information systems in retail, in the supply chain, in the logistics center, but also in the métier. Thank you very much. Next question from Anne-Laure Bismuth from HSBC. Over to you. Hi, good morning, Carol and Eric. Two questions for me as well. I saw that you said that there were no changes in the trends compared to Q2. Can you give us some indications for each region, especially for the Asia region? Is it still growing? And then second question on the price evolutions. Normally, you increase prices at the beginning of the year. This year, it was plus 9%. Can you maybe give us an insight into the price increase for early 2025? So, yes, indeed, we were at plus 9% for the price increase at the beginning of the year. No price increases since then. Regarding next year, we're going to remain true to our policy, which aims at capturing our increase in production costs, and then we'll add to this the negative foreign exchange impacts. But we can't project that right now. Now, we won't be looking at covering the whole negative impact of foreign exchange rates. Now, regarding the trends, I can indeed confirm that for mature markets, we can't see any significant changes in trends. Likewise, in the U.S., it's been a good start for us in October over there and elsewhere. Maybe just a quick word on continental China. Now, as we mentioned, we saw a drop in footfall after the Chinese New Year. And that trend ended at the end of Q2. And since then, we haven't seen any changes in the trend, no increase or decrease. There's a footfall issue, but it's compensated by the fact that the average purchases, the average basket, so to speak, is more important than it used to be. And it's important also to say that in China, our clients are loyal, and this allows us to continue to sell our products there. And then when you zoom out and when you look at Asia Pacific overall, you can see that the growth percentage is slightly slower in Q3 compared to Q2, but the sales in value are stable at 1.6 billion. And actually, the same goes for Greater China, where the revenue for Q3 is equal to the revenue of Q2. So there's no significant change in trends. Thank you. Next question from Adrien Duverger from Goldman Sachs. Hello, Eric Carole. I've got two questions. First of all, can you comment on the price volume and scope for growth for that quarter? Second question, what surprised you the most in the first three quarters this year? And are your expectations vis-à-vis China different now than they were in Q2 for the rest of 2024 and looking forward to 2025? Well, look, I'm not going to go into too much detail, but if you look at France... you'll see that growth is significantly higher to the price increase. In France, you've got plus 14%, and the price increase was lower than the average 9%. It was around 6%. So you can see that there is a mix and volume effect, which is quite strong. And what I find is particularly healthy is that we did this with matches other than leather goods. Second example now for Europe. You can see that the growth stands at 18%. And even if you... Take into account the plus 9 percent price increase. You can see that the growth is really a healthy one. And that growth is driven by mid-years outside of lever. So strong robustness. And it's the same for the U.S. and for Japan. And it's also worth noting that the export customers in Japan remain very low, beneath 10%. So in Japan, the growth is really driven by our local customers. And now regarding your second question on what surprised us the most over the last three quarters, well, it's probably the resilience of the group compared to other brands. It's this contrast, I believe, between the resilience of Hermès, especially in China and greater China, compared to other players in the industry. Next question, Edouard Aubin from Morgan Stanley. Over to you. Thank you very much. Two questions for me. First of all, for small lever goods and lever goods, you were at plus 17%. Eric, are you still expecting a 14% growth for the whole year? with the price increase at the beginning of the year? That's my first question. Second question on stock levels, which had slightly increased in June. Can you maybe tell us whether stock levels have gone up down in September compared to June and give us some sense of these stocks for each categories or for each countries? You told us, for example, that stocks were particularly high in June in China. Is that still the case? Well, for lever goods, I can tell you that indeed we have ramped up current projects. We've recruited new people and we are training more people, and that's perfectly in keeping with our plan. And productivity is good in all of our sites. So our capacity has increased by 6%, 7%, and there's a 9% price increase, and that allows us, yes, to reach this annual objective that we should stick to. Regarding the stocks now, there's been a slowdown in China, as you know, but you know how we organize these podium events twice a year where the store managers buy their products. And stocks have stabilized now when you look at them in sales per month. So no significant slip. And the stock for lever goods are in keeping with the trends for the last few months. Stock for lever goods remain stable. Next question, Thomas Chauvet from the Citi Group. Good morning, Eric and Carol. Two questions for me. First of all, for China, Eric, you said that the value was stable compared to Q2, but was it lower than Q3 last year? I imagine it is the case. But I'd just like to clarify this. And can you give us an indication in the growth of Chinese customers who buy abroad? Is there any changes there? And then in your interview this morning, you commented on the Oche Fleurier manufacturer and its first refusal right. Does this mean that you could block the sales of the foundation if they wanted to sell it to LVMH or somebody else? And are you interested in buying up the 75% that... should go up for sale? And can you remind us how much you paid for the 25 percent in that company? So for China and Greater China, at the end of September, we remain – we continue to have, sorry, growth, although it's slow growth. For the Chinese customers, their share has slightly reduced in Q3 compared to Q2, but also compared to last year. And that's particularly true for France and for Europe and to a lesser extent in Southern Asia. And then regarding Roche, we indeed have 25% of that company. and they are part of a larger watchmaking group that is owned by the foundation. So we've got this 25% stake, and we also have... some weight in the whole setup since we also have preemptive rights. So we're keeping a close eye on these changes as we actually keep a close eye on all the vertical integration projects. And Eric, earlier you said that you were thinking of maybe changing the offering for watches. Does this mean you are going to invest in a more complicated watch in that segment? No, no, it's more actually a matter of reworking the design, the actual shape of the watches. The H08 and the cut were very successful, so we might be thinking about this at Hermès on the product offering. Thank you, Eric.

The next question is from Susanna Pusch of UBS.

Thank you for taking my question. I have two. So maybe first of all, just to follow up on pricing. To clarify, I think there's been some speculation recently that you took some pricing in the last quarter and earlier you confirmed that you actually haven't. So could you maybe clarify if you just made some selective adjustments or anything like that to explain that? and a follow-up on pricing for next year. I understand that it may be still a little bit too early to comment on that, but would you be able to at least confirm if pricing is likely to be ahead of the historical, let's say, 1% to 3% range, because the inflation in the business is still running ahead of that? That would be very helpful. Thank you.

Hi, Susanna. So regarding the pricing, I confirm you that there were no further increase, you know, since the beginning of the year as our usual strategy. So no further price increase since, you know, the beginning of the year for Hermès. Second thing, for 2025, you know, we don't have just another age, but if you look midterm, you are right. You know, there were very limited price increases between 2016 to 2022 in the range of one point. Then more in the range of 4%, 7% and 9% just last year. So as Eric indicated, we are just at the beginning of the pricing process now that will be decided for the beginning of next year.

But we will stick to our basic rules, which is to pass to the customer the cost increase of the production cost, material and wages. And on top of that, maybe also the impact of the negative foreign currencies I mentioned before. But in any case, we will not be at the level of this year, which I remember is 9%. We will be lower.

But just to follow up, so would you say that the inflation you're seeing in the business and the Forex headwind, they are bigger than they've been, let's say, in the last couple of years. So that could potentially justify slightly higher price increase.

Well, you know that regarding the edging, you know, as Eric just mentioned at the beginning of the call, you will have just a negative impact on the degradation concerning 2020 and 2025 that has to be taken into account, even if it's not fully taken into account in the prices. Thank you. And Susanna, after that, regarding inflation, just to look at some raw material like gold, et cetera, evolution.

The next question is from Melania Grifo of BNP Paribas.

Good morning, everyone. I have two questions. My first question is on France. You know, since there was a slight impact from the Olympic Games in Q3, I was wondering if at the beginning of Q4 you saw a reacceleration in the country, so after the Olympics. And my second question actually is on China. If you could please provide some granularity on your performance in Asia and in China in Q3, because in light of your price increase, I assume that volumes are negative. And if that's the case, should we assume that there is no wait list in China for handbags? And if so, have you been redirecting the bags to U.S., Europe, or those countries where they are performing better? Thank you.

Yes, in France, the traffic was penalizing our three Parisian stores during the Olympic days, I would say mainly August, but it was partly offset by a strong activity in the stores, what we call the balnéaires, south of France. So, this is why you see a slight decrease, but this negative impact now has disappeared and recovered based on what we observed beginning of October. So, we are back to the same trend. Thank you. And your second question is regarding Greater China. in China mainland. As I mentioned before, we do not observe business change since June. The traffic issue, traffic drop has been partly offset by value. I mentioned jewelry, leather, and ready-to-wear. and customers which are still present and support our sales. In Hong Kong, which is the second main area in Greater China, it's more a traffic issue due to the fact that some Hong Kong inhabitants are going to China mainland, and the inflow is slowing down. So more flows to Shenzhen, for instance, and less inflows from China. Taiwan is doing very well. It's continuing to grow based on very healthy macro indicators.

Thank you. The next question is from Rogerio Fujimori of CIFEL.

Thank you, Eric. Good morning, Eric. I have two questions. I was just hoping if you could talk about the contribution to growth from your existing clients and new clients. Was there any changing so far this year relative to what is a normal mix for Hermès? I was just wondering if the contribution to growth, particularly for your existing clients in China, has been higher than usual. And then my second question is on Hermès. average basket, I think you flagged it in China, the downturn in traffic has been offset by higher basket spend. I was hoping if you could talk about the average basket size trends for the U.S. and Europe as well. Thank you.

Globally, the average basket increase is what we observe in most of the regions. So this is not only for China, but also for Europe and France. Your first question was regarding the mix of customers. There is no, as I mentioned before, no change. Maybe a slight lower weight of Chinese customers, which is in any case offset by an increase in Middle East and U.S. customers.

Thank you. I was just wondering that within your Chinese, the contribution from existing clients has been higher than usual.

Yes. In China, our sales are based, as I mentioned before, thanks to customers which are existing customers. While in other regions, we have an increase in traffic. And an increase on average basket. Thank you.

Ladies and gentlemen, you can ask your questions by dialing star and 1 on your keypad. The next question is David Demaya from CIC. Over to you. Good morning, Eric and Carol. Two questions on my side. On your real estate and retail strategy, in the press I saw that you'd bought a store in New York, I believe, and a new store in the west part of Paris. In that case, do you confirm your 1 billion capex figure, and does it include this new real estate acquisition? And second question, on the tax, the new tax in France on corporations, is it going to have an impact or not? Now, regarding the extra corporate tax that we have to pay in France, on the basis of current taxes for 2024, the increase should be of 300 million euros. But this will have to be paid in 2025. Regarding the retail strategy, a group... is to have few stores but iconic stores. And the acquisition of the Sèvres store in Paris was part of that strategy. And the Sèvres store is a store in which we believe there is a great potential for growth. And it sits nicely in our Paris constellation with stores where we have a lot of tourists. But Sèvres is more aimed at local customers. And if you've come to our recent publications, Sèvres is quite an iconic store. and really captures the originality and singularity of Hermès. So for us, it's very important to secure that since we had the chance to buy it. Then you mentioned another store, but there is no plan to open any new store in Paris. So it's just about buying the store, not the building. So hold on. In Paris, we have free stores, we own the free stores, and there are no other projects to buy up stores. We have no further questions for the minute. Well, thank you very much for taking part in this conversation.