Hermes International Societe en commandite par actions Unsponsored ADR

H1 2026 revenue reached EUR 8.2 billion, up 6% at constant exchange rates and up 2% at current exchange rates. Q2 revenue was EUR 4.1 billion, up 7% constant currency. Operating income was EUR 3.4 billion and operating margin was 41%. Gross margin was 71.1%, up 0.4 points versus H1 2025. Available cash flow was EUR 2.2 billion, up 18% year over year, and cash flow before investments was EUR 2.7 billion, up 16%. The company said the negative exchange-rate effect was EUR 360 million, reducing growth by 4.5 points. For the full year, Hermes said operating investments will reach EUR 1 billion and its outlook remains unchanged, with an ambitious objective of revenue growth at constant exchange rates. Management also said the H2 gross margin should face a negative exchange-rate effect, with the conversion benefit expected to be close to zero for the year.

Axel Dumas emphasized that Hermes is still being driven by desirability, quality, and client loyalty rather than promotional tactics or volume chasing. He highlighted continued investment in production capacity, exclusive retail locations, and hiring, saying the company plans one new leather workshop per year through 2030 and remains strict on quality and craftsmanship. His tone was confident but selective: optimistic about Hermes’ fundamentals and creativity, yet careful on China and the Middle East, where he said conditions have stabilized but not improved meaningfully.

Eric du Halgouët focused on the strength of the financial model despite currency headwinds. He cited EUR 3.4 billion of operating income, a 41% operating margin, 71.1% gross margin, and EUR 2.2 billion of available cash flow, while noting a EUR 360 million negative FX impact and close to EUR 100 million of negative hedging. He also said tax expense was elevated by the French exceptional contribution, estimated at EUR 360 million for the full year, and that net cash stood at EUR 12.9 billion at June 30, 2026. Capital spending is set to accelerate in H2, with full-year operating investments expected to reach EUR 1 billion.

Analysts pressed on China, asking whether demand there was improving and whether growth was shifting toward higher-end clients; management said China had stabilized but they do not see a rebound, and that demand remains tied more to real estate and stock-market sentiment than to overall GDP growth. Questions also focused on leather capacity and whether Hermes should slow volume growth; Dumas argued the company is constrained by craftsmanship and leather quality, but still sees room to grow while protecting exclusivity and creating jobs. On Europe, management explained the France-versus-rest-of-Europe gap mainly by a heavy domestic store base in France and weaker tourist flows, especially from the Middle East. Analysts also asked about Middle East weakness and margin sustainability; management said the Middle East effect was about 1.5 percentage points in Q2 and that the H2 margin will still face a meaningful FX headwind, partly offset by a conversion benefit that should fade.