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Hermes International SA RMS

Rating as of

Morningstar’s Analysis

Valuation
Currency in EUR
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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Hermes Rebounds Strongly From Pandemic, Fetches Record Profitability; Shares Expensive

Jelena Sokolova, CFA Senior Equity Analyst

Analyst Note

| Jelena Sokolova, CFA |

We are increasing our fair value estimate for wide moat Hermes to EUR 500 as we incorporate better 2021 assumptions for revenue and profits following very strong first-half results. Revenue was up 33% against 2019 comparables in both the first and the second quarters, with strong growth across all categories. Other Hermes, which comprises jewellery and home goods and watches, recorded the strongest performances with 84.5% and 76% growth against 2019 comparables in the quarter. Leather goods, the biggest division, recorded 24% increase against 2019 levels in the quarter, a spectacular performance, which we expect to moderate in the quarters to come, given capacity constraints, non-recurrance of extra stock availability in the beginning of the year, and limited price increases (less than 2%). Nonetheless, we increase our expectations for Leather goods growth in 2021 to 22% (implying 9% increase from 2019 levels in the second half) from 17% previously forecast.

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Company Profile

Business Description

Hermes is a 180-year-old family controlled luxury goods company best known for its Birkin and Kelly bags. Its biggest segments are leather goods and saddlery, accounting for around half of revenue; clothes and accessories (22% of sales); silk and textiles (9%); and other products such as perfumes, watches, jewellery, and home furnishings. Hermes has a record of smooth sales growth, with no sales decline over the past 10 years. It has around 300 stores globally, of which it owns and operates 219.

Contact
24 rue du Faubourg Saint Honore
Paris, 75008, France
T +33 140174920
Sector Consumer Cyclical
Industry Luxury Goods
Most Recent Earnings
Fiscal Year End Dec 31, 2021
Stock Type
Employees 16,966

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