Hermès Shares Drop 11%, Despite Higher Leather Goods Sales

Shares of French luxury brand Hermès fell 11% after the company reported second quarter results that highlighted continued weak demand in China, its largest market.

The luxury group posted 6.7% currency adjusted sales growth in the second quarter, with revenue reaching €4.1 billion. While the results met market expectations, investors were disappointed by the lack of a stronger recovery in China.

The company's leather goods division, which accounts for nearly half of Hermès' total revenue, recorded 10% growth during the quarter. However, this was slightly below analysts' expectations of 10.8%.

Following the results, Hermès shares closed at €1,509, marking their biggest single day decline in more than 15 years and wiping around €19.7 billion from the company's market value.

Hermès also reported an operating margin of 41%, higher than analysts had expected, reflecting the company's strong profitability despite slower sales growth.

In the Asia Pacific region excluding Japan, Hermès recorded 2.5% sales growth, below market expectations of 3.3%.

The company said business in France improved during the second quarter as tourist activity in Paris increased. However, ongoing uncertainty in the Middle East, along with recent heatwaves and wildfires in parts of Europe, continued to affect international tourism and luxury spending.

Industry analysts said investors had hoped for stronger sales momentum, particularly because Hermès shares have traditionally traded at a premium compared with other luxury companies.

Despite the market reaction, Hermès remains optimistic about its long-term outlook and expects its current growth trend to continue in the coming months.