The Hermes Straw

By shedding 6.4% on Thursday, 05-09-2024, the second worst performance of the Stoxx600 that day, Hermès may signal a paradigm change for listed Luxury. Hermès’ superior business model (in effect choosing whom to sell to) has helped it navigate the waning demand picture in China. Its share price has been way more resilient than that of its peers since doubts emerged about Chinese consumers and Chinese politics.

This unique pattern has been broken by the Thursday fall that brought the stock back to the trough reached on the 05/08 market panic. 

If Hermès can be sold … and fall, then the Luxury sector's dykes may well collapse. Without the umbrella of the Hermes 50x P/E, the bottom for the sector is possibly quite low.

Compared 2024 P/Es: Luxury (blue, incl. Hermès) and Hermès (pink)

It may matter to remember that, so far, the sector's earnings trimming exercise has been nil except for Kering in a big way (see next table) and LVMH more marginally. The €28bn total earnings expected in 2024 are to be compared to the €11-15bn base line of earnings before COVID-19 struck and consumers splurged on bare necessities. 

It will take quite a few weeks of soul-searching before deciding that the Hermès straw has indeed broken the luxury camel’s back. But the omens are strong that it did.

Luxury valuations … before a wave of cuts