Fearless of the winter! Hermès Q2 sales accelerated to a 9% year-on-year increase, but net profit fell to €2.25 billion, and stock price dropped by 4% | Financial Report Insights

In the winter of luxury goods, Hermès experienced counter-cyclical growth in Q2, with sales growth accelerating to 9% in the second quarter, although net profit declined quarter-on-quarter.

On Wednesday, July 30, global luxury giant Hermès announced its Q2 and first-half performance report for the year ending June 2025. The main financial data is as follows:

Revenue: Q2 sales reached €3.91 billion, a year-on-year increase of 9% (calculated at fixed exchange rates), accelerating from 7.2% in Q1, but slightly below the market expectation of €3.92 billion; for the first half, the group achieved sales of €8.034 billion, a year-on-year increase of 8.1%.

Profit: The recurring operating profit for the first half increased from €3.15 billion in the same period last year to €3.33 billion, but net profit attributable to shareholders fell from €2.37 billion to €2.25 billion.

Cash Flow: Operating cash flow was €2.733 billion, a year-on-year decrease of 3.4%; adjusted free cash flow was €1.847 billion, a year-on-year increase of 4.0%.

By Business Segment: Leather goods and saddlery revenue for the first half was €3.578 billion, a year-on-year increase of 12.4%; ready-to-wear and accessories revenue was €2.255 billion, an increase of 5.5%; silk and textiles revenue was €447 million, a year-on-year increase of 3.5%; perfume and beauty revenue was €248 million, a year-on-year decline of 3.8%; watch revenue was €281 million, a decrease of 7.9%.

By Region: The Japanese market grew by 16%, showing outstanding performance, while the Asia-Pacific (excluding Japan) only increased by 3%, reflecting challenges in the Chinese market; the Americas market grew by 12%, relatively stable.

Hermès' relative strength mainly stems from its unique market positioning and scarcity strategy. Unlike other luxury brands that rely on mass market expansion, Hermès has built an almost monopolistic ultra-high-end market position through limited supply and craftsmanship inheritance, a model that demonstrates stronger resilience during economic downturns.

Despite impressive performance, Hermès management has expressed considerable caution regarding future prospects. The group maintains its medium-term growth targets while clearly mentioning "the current environment is filled with uncertain economic and geopolitical factors."

After the earnings report was released, Hermès' stock price in Europe fell by about 4%.

Business Diversification Intensifies, Core Categories Bear Growth Responsibilities

The most striking aspect is the significant divergence in performance across various business lines. The leather goods and saddlery business continues to play the role of growth engine with a growth rate of 12%, generating revenue of €3.578 billion, accounting for nearly 45% of total revenue.

In the earnings report, the group management attributed this to increased production capacity and sustained global market demand, with new styles such as Faubourg Express and P'tit Arçon also gaining market recognition.

The performance of other categories has been mixed. The ready-to-wear and accessories business grew by 6% to €2.255 billion, benefiting from the success of the latest fashion collections, but the growth rate has clearly slowed More concerning is the 8% decline in the watch business, with revenue dropping to €281 million. Although the group emphasizes the continued development of new products in a "challenging environment," this performance reflects the competitive pressure in the high-end watch market.

The perfume and beauty business shrank by 4% to €248 million, which the group attributed to a high base effect from new product launches in the same period last year. However, this performance appears relatively weak against the backdrop of overall growth in the beauty industry.

Regionally, the Japanese market's strong growth of 16% stands out, with revenue reaching €815 million, reflecting the value of local customer loyalty and a high-quality distribution network. The Americas market also showed relatively robust growth of 12%, with revenue of €1.455 billion, primarily driven by double-digit growth in the United States.

Exchange rate fluctuations, capacity expansion... profitability remains under pressure

The financial report shows that Hermès achieved an operating profit margin of 41.4% in the first half of the year. Although it remains at an industry-leading level, it recorded a year-on-year decline of 0.6 percentage points.

Additionally, while the 9% year-on-year growth in sales is commendable in the current environment, it still appears sluggish compared to Hermès' historically double-digit growth performance.

The group specifically mentioned the negative impact of exchange rate hedging. The financial report indicates that exchange rate fluctuations had a negative impact of €77 million on the group's revenue in the first half of the year, reflecting the cost pressures faced by multinational luxury goods companies amid increasing global exchange rate volatility.

At the same time, ongoing investments in capacity expansion have also compressed profit margins in the short term. The company previously announced plans to establish multiple leather goods workshops in France before 2028, including the 10th leather goods center in Normandy. While this demonstrates a commitment to local manufacturing in France, it also implies ongoing capital expenditure pressures