Global High-Net-Worth Trends And Ethical Craftsmanship Will Expand Markets

Key Takeaways

• Expanding affluent customer base in Asia and disciplined supply control strengthen brand exclusivity, driving sustained revenue growth and industry-leading margins.
  
• Heritage, strong sustainability focus, and diversification into new categories reinforce premium pricing and broaden revenue streams without diluting brand equity.
  
• Macroeconomic weakness, consumer caution, rising costs, and secondary market risks threaten Hermès' growth, margins, exclusivity, and over-reliance on core product categories.

Catalysts

Engages in the production, wholesale, and retail of various goods.

• Ongoing expansion of global high-net-worth individuals, especially in Asia-Pacific (e.g., strong resilience in Japan and Korea, future revitalization anticipated in China), continues to broaden Hermès' core, loyal customer base, supporting a sustained uplift in long-term revenue growth.
  
• Scarcity-driven supply model, underpinned by disciplined capacity investments (opening four new leather workshops in the next four years) and exclusive distribution expansion into key markets (e.g., U.S., China, India), enables Hermès to maximize pricing power and protect industry-leading gross/net margins.
  
• Authentic heritage and visible commitment to ethical craftsmanship, sustainability initiatives (e.g., renovations for environmental performance, inclusion at the workplace), and transparent sourcing increasingly resonate with affluent, values-driven consumers, justifying premium pricing and helping defend margin strength.
  
• Strategic diversification into new and under-penetrated categories (Maison/home, jewelry, ready-to-wear), showcased through high-profile launches and store renovations, diversifies revenue streams and boosts overall revenue growth beyond core leather goods without diluting brand equity.
  
• Enhanced omni-channel customer engagement and continued investment in digital transformation and store experience (e.g., significant IT and real estate spend, globally coordinated events) position Hermès to capture incremental revenue opportunities from both in-store and online, contributing to top-line and margin expansion.

Hermès International Société en commandite par actions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hermès International Société en commandite par actions's revenue will grow by 9.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 28.5% today to 30.9% in 3 years time.
• Analysts expect earnings to reach €6.3 billion (and earnings per share of €59.9) by about September 2028, up from €4.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €5.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 50.6x on those 2028 earnings, up from 47.9x today. This future PE is greater than the current PE for the GB Luxury industry at 23.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.7%, as per the Simply Wall St company report.

Hermès International Société en commandite par actions Future Earnings Per Share Growth

Risks

• Declining participation from "aspirational" or first-time customers across global markets, due to macroeconomic uncertainty and a trend towards saving rather than discretionary spending, threatens incremental revenue growth from entry-level Hermès products and may slow expansion of the wider customer base.
  
• Persistently weak consumer sentiment and "wait-and-see" behavior among Chinese clients, along with ongoing real estate and stock market issues in China, casts doubt on a quick rebound in one of Hermès' most critical growth markets, putting long-term revenue and earnings at risk.
  
• Increasing input costs for raw materials (e.g., gold, precious metals) and rising operating expenses (including administrative, selling, and labor costs) are expected to accelerate in the second half of the year, which could pressure margins and reduce net profit growth.
  
• Expansion of the luxury resale and secondary market-highlighted by spectacular auction prices for iconic Hermès pieces-creates unwanted speculation, risks brand dilution, and could erode exclusivity over time, ultimately impacting pricing power and long-term margin sustainability.
  
• Over-reliance on Leather Goods and a limited number of flagship product lines makes Hermès vulnerable to category-specific demand shifts and regulatory changes (e.g., potential future bans on exotic leathers), heightening risk to long-term revenue diversification and earnings stability.

Valuation

• The analysts have a consensus price target of €2449.857 for Hermès International Société en commandite par actions based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €3000.0, and the most bearish reporting a price target of just €1580.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €20.3 billion, earnings will come to €6.3 billion, and it would be trading on a PE ratio of 50.6x, assuming you use a discount rate of 7.7%.
• Given the current share price of €2047.0, the analyst price target of €2449.86 is 16.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.