Berenberg turns cautious on Hermès as luxury growth advantage fades

 Berenberg cut luxury goods maker Hermès International SCA to "hold" from "buy" and lowered its price target to €1,230 from €1,850, saying the company has lost its double-digit growth premium over LVMH in key regions.

Hermès shares closed at €1,293 in Paris on Oct 22, within a 52-week range of €1,262.50 to €2,240. Berenberg also cut its target for the company’s U.S.-traded shares to $138 from $215.

Third-quarter revenue was €4.10 billion versus €4.12 billion consensus, and growth at constant currency was 4.3% versus 5.2% expected, with the Americas and non-leather goods businesses the main drivers of the miss, Berenberg said. Growth has failed to beat consensus for a third straight quarter.

In the Americas, revenue was €791 million versus €801 million consensus, and growth was 8.8% versus 10.8% expected. 

Weakness there was blamed largely on tougher comparisons with a year earlier, but Berenberg said the market already knew this, and the growth gap versus LVMH in the region has narrowed to 4 percentage points from an average of 13 points between the first quarter of 2024 and the first quarter of 2026.

The premium over LVMH also fell to 3 percentage points in Europe and 4 points in Asia in the third quarter, which Berenberg said implies a more aspirational customer base than it had thought.

Weakness in China was partly blamed on a new offshore wealth tax. Berenberg said the tax took effect only on Oct 22 and that the weakness was in the more aspirational product categories.

Chief Financial Officer Eric du Halgouët reported no change in trends across all regions at the start of the fourth quarter, with China’s October in line with August and September, which were difficult months for the broader Chinese market.

Berenberg said local and tourist spending in France, 10% of group revenue, is at risk after the recent riots.

Berenberg cut its revenue growth assumptions by 1 to 2 percentage points for 2027 and 2028 and now expects 6% constant-currency growth a year. 

Because the CFO pointed to 5% nominal revenue growth needed to cover cost inflation, the risk to profit margins increases, it said. Its operating profit forecasts for 2027 and 2028 fall 1.9% and 4.1%. It also raised its tax rate for both years to model a 50% probability that the windfall tax persists.

Berenberg based its target on a price-to-earnings ratio of 23 times, a post-2009 low for the stock.