Why Hermès’ margins shame the competitionThis analysis is provided by Eden Bradfeld at BlackBull Research—sign up for their Substack to receive the latest market insights straight to your inbox.
You know my favourite stocks are luxury stocks, and they’ve had a hard last year. Richemont and Moncler were the clear standouts from the most recent season (both grew sales), while Brunello did well too. Obviously, Kering did not do well. Here’s Hermes, which pretty much smashed everyone out of the park:
Revenue amounted to €15.2 billion
(+15% at constant exchange rates and +13% at current exchange rates)
Recurring operating income reached €6.2 billion, representing 40.5% of sales
Adjusted free cash flow amounted to €3.8 billion, up by 18%
Can we take a step back and please admire what smashing results those are — that’s a luxury business which does not cut corners operating on a 40.5% margin, with a free cash flow stream that is unheard of for the luxury industry. Let’s also consider that this is during what is nominally a recession.
Worth thinking about what makes Hermes special:
A hatred of meetings, corporate hogwash, and the associated.
They compete only with themselves — not others .
Human values. Hermes objects are made by people and bought by people . Corporate hogwash tends to see people as numbers, and then corporate hogwash forgets about the importance of psychology.
A fanatical obsession with product — product is the message.
No marketing team.
If your product is good enough, and the story you communicate is good enough, the people will come. The same can be said of Brunello, which I have always said is like a “mini-Hermes” — people buy Brunello for quality and the ethos it communicates. Worth re-reading Brunello’s daily routine, which does not look like the nonsense ice bath CEOs who you see on Instagram:
