Ladies and gentlemen, welcome to the conference on the Q1 2024 revenue for Hermès International. I'm now going to hand over the floor to Éric du Halgouët, who is Executive VP of Finance for Hermès International, and Ms. Carole Dupont-Pietri, in charge of financial and non-financial communication. Over to you.
Good morning, one and all. Thank you very much for joining us at this event. Sales growth has been particularly robust in Q1 2024. The group's consolidated revenue reached EUR 3.8 billion at the end of March 2024, up 17% at constant exchange rate and up 13% at current exchange rates. All the regions have posted double-digit growth. This dynamic testifies to the loyalty of our clients across the world and the strength of the group's model and the desirability of our creations in a more complex environment.
It also reflects our value-based strategy based on exceptional know-how, the finest materials, and uncompromising quality. In Q1 2024, all the métiers confirmed this solid momentum and achieved good performances. The group continued with its investments in production capacity with four leather goods workshops across the next four years, as well as in the other métiers and the distribution network. True to the Maison's social model, the group distributed EUR 200 million in respect of the 2023 incentive schemes and profit sharing, and almost EUR 100 million in group bonuses to all employees worldwide. And that came in addition to the sixth free share plan announced last June. Hermès continued accelerating recruitment and training to keep up with the growth in all the different métiers. For 2024, our outlook remains the same. In spite of global uncertainties, we are confident in the resilience and strength of Hermès. I'm now going to hand over to Carole for a breakdown of the different geographical areas and métiers.
Thank you very much. We are going to now move on to the geographical breakdown, and the evolutions will be given at constant exchange rates. At the end of March 2024, all areas posted double-digit growth. The main trends are the following: Asia ex-Japan +14% pursued its growth in all the countries of the region. The desirability of the objects and the house's value strategy enabled to offset softer traffic in Greater China following the Chinese New Year celebrations. In January, the Wuxi Store, the 34th Hermès address in China, opened in the eastern province of Jiangsu. Japan +25% recorded an exceptional growth thanks to the loyalty of its local customer base.
A new store was integrated in February in Tokyo in the district of Azabudai Hills amidst a very welcoming and luminous interior. Americas +12% posted a solid growth thanks to the good momentum in the beginning of the year. In March, the exhibition "Hermès in the Making" was toured in Mexico, and the parade event around the home universe was hosted in L.A. Several projects are underway, and the Princeton store in the US was inaugurated just yesterday. Finally, Europe excluding France, sales are at +15%. France +14% and have achieved solid growth. In France, the 14th edition of the Saut Hermès was successfully held at the Grand Palais Éphémère in Paris. Furthermore, our leather artisans, goldsmiths, and the L'École Hermès des Savoirs-Faire shared their passion for the finest materials at an exhibition in Paris during the European Artistic Craft Days.
Now, let's take a look at the métiers once again at constant exchange rates. At the end of March 2024, all the métiers confirmed solid momentum and achieved good performances. The Leather Goods and Saddlery Métiers +20%, for which the demand is very sustained with new models like the Arçon, the Haut à Courroies Multipocket, and the Constance Élan. The métiers continues to showcase hand painting on the Birkin or embroidery on other models. We have four projects of new leather workshops in the next four years: Riom in the Puy-de-Dôme in 2024, L'Isle-d'Espagnac in Charente in 2025, Loupe in Gironde in 2025, and Charleville-Mézières in the Ardennes in 2027, which will reinforce the nine centers of expertise located across France. Hermès reinforces, therefore, its local anchoring in France and develops employment and training in France. The annual growth target remains unchanged. Now, ready-to-wear and accessories +16%.
The spring-summer 2024 ready-to-wear collections were warmly welcomed. The 24 Faubourg Saint-Honoré store in Paris presented the women's Hors-Série collection made up of exceptional pieces. Fashion accessories and shoes enjoyed robust growth, displaying the abundance of the house's savoir-faire. Silk and textile sector +8%. Strong growth there again with new formats and outstanding materials. New investments will be taking place in the Pierre-Bénite site in Lyon in a new printing line. Perfume and beauty sector compared with a first quarter in 2024, which benefited from the launch of the Eau de Toilette Un Jardin à Cythère. The H24 men's line was enriched with Herbes Vives and the Hermessence collection, which celebrates 20 years this year and unveiled a new Eau de Parfum Oud Alezan. Watches métier +4% continues its development.
At the Geneva Watches and Wonders exhibition held in mid-April, Hermès presented Hermès Cut, a new creation featuring manufacture movement. The other Hermès sectors +25% with jewelry and home universe pursued their strong growth, highlighting the full creative strength and singularity of Hermès. For example, the new creations in jewelry based on the Chaîne d'ancre, the Equestrian Universe, or the Kelly Lock in January. The Tressage Équestre Tableware Service was presented in Paris. Thank you very much, and we are now at your disposal should you have any questions.
Ladies and gentlemen, you can now ask your questions by typing star and one on your dials. Please keep it to two questions. Our first questions come from Charles-Louis Scotti from Kepler Cheuvreux.
Thank you very much for taking my question. I have two. My first question is on watches. For Q1, we see that the sector is doing quite well, and it's been growing every year. Do you think that you can continue to gain market shares against your competition? And I'd like to know what the first feedback is on the Hermès Cut collection, which seems to have drummed up a lot of enthusiasm. Second question: on America, at group level, your growth rate at constant exchange rate is the same as in Q4 2023, but there is a slowdown in the region. Can you tell us where this slowdown, although a 6% growth, is good and better than most of your competition? Thank you.
Yes. Well, thank you very much.
Regarding watchmaking, there is indeed a slowdown of the market as a whole, where you can see the Swiss exports actually slowing down. However, Hermès is more and more present on the mechanical high-range segment. And on that segment, which is the one that is resisting the most at the moment, we are making progress. And regarding the launch of the Hermès Cut in Geneva very recently, well, this falls under that strategy. It's a mechanical watch. And if you look at the percentages, you'll see that last year we had an excellent Q1 for watchmaking. So there's this basis effect, which is quite important, and some tensions on the production side of things. So that's it for Q1 2024. Now, for the Americas, America enjoyed a 12% growth. And that growth comes from the 7% increase in prices, lower than the average increases, which were 8%-9%.
And that's due to the value of the dollar. So the volume effect is all the more important when you compare this overall growth and remove the price increase. No openings in Q1. And what is quite striking in this growth is that it was driven by all of the métiers, be it volume-based métiers or value-based métiers. So our growth is very healthy and is evenly distributed across all the markets. Now, footfall is quite stable in America. In Hawaii, we've noticed fewer people traveling, which probably explains part of that slowdown. However, on the East Coast, our stores in New York and on the West Coast are doing really well. And for a reminder, in the U.S., it is a market where we have full confidence for the midterm. And in China, we are continuing to open new stores.
Most of the openings are concentrated in the U.S. and in China. In the U.S., we are confident but will remain prudent for the second part of the year because of elections and the potential impact that this will have on our clients' behaviors.
Thank you. Next question: Luca Solca from Bernstein.
Hello, Éric and Carole. I've got a question because I'd like to better understand the changes in behavior in Chinese clients. We've seen a drop in the less affluent clients. Could you maybe enlighten us on that? And in a completely unrelated area, what is your timeline for experiments and tryouts for alternatives to leather? I see that you've collaborated with MycoWorks for alternatives to leather. And I was wondering if that was compliant with your quality standards and if you had a desire to launch goods with this alternative to leather.
Well, thank you very much for the question. First of all, for Chinese clients, for continental China, there is a slight drop in footfall that came in March after the Chinese New Year celebrations. But this doesn't really have any repercussions on our numbers, figures, since it was offset by an increase in the average basket purchases. For example, silks and fashion accessories that are volume-based métiers were slightly impacted by this drop in footfall, but it was offset by a strong growth in leather goods and jewelry and women's ready-to-wear, with great success for the exceptional items. That being said, I'd like to add that for continental China or Greater China, we enjoy double-digit growth in Macau, Taiwan, or continental China. The regions in which Chinese clients were present were mainly Europe, France, and Europe without France.
For the first quarter of 2024, we see that there is no significant evolution or changes in our Chinese clients' demographic. In other words, in Europe, it's mainly local clients, but our exports clients are made up in the same way as Q1 2023, with Greater China, South Asia, Middle East, and the Americas. A quick focus on France now. The client mix is quite balanced between Greater China, Middle East, Americas, other European countries, and South Asia. So no significant changes in the Chinese client demographic. Regarding your second question now on research and innovation to find alternatives to leather, well, we are continuing with such projects. We've got proofs of concepts which are making progress. But here, we're going to remain true to our quality standards. As soon as or rather, until we don't find something that is satisfactory, we won't make any launches. We do continue to invest in these leather alternative projects. We've got partnerships and 4 or 5 projects underway. They are more medium-term projects than anything else.
Thank you. Next question: Anne-Laure Bismuth from HSBC. Over to you.
Good morning, Carole and Éric. Two questions. First of all, could you comment on the early trends of Q2 and give us a little bit of color for each region? Leather has grown by 20%. We know that there is a price effect at work there with the price increases of 8% and 7% of volumes. So that makes up 15%. So where does the 5% delta come from? And what can we expect for the rest of the year? And what does it mean in terms of client profile?
Well, regarding the trends of April, it's too early to answer that question because we've only been able to see the first two weeks of business. The only thing I can say is that there is no exceptional or significant event. Everything is running as expected. For Leather , we have 20% increase for Q1, but we can't extrapolate that for the whole year for a simple reason. It's that the Chinese New Year is always a peak in Leather Goods demand. And that's the extra 5 points that goes above our annual target. It's really the Chinese New Year effect. Price effect remains at 8%-9% for the year and volume effect 7%. So our objective is 15% growth across the year, as you mentioned.
Next question from Edouard Aubin, Morgan Stanley. Over to you.
Good morning, Éric and Carole.
Just to go back to growth in the leather métiers, could you tell us about the level of stocks at the end of March? Of course, we don't have a detail for each category in December, but at group level, at the end of the year, as I recall, you had higher stocks compared to the previous year. So can you tell us a bit more about your stocks at group level and in leather goods particularly? And then when we look at aspirational categories at Hermès, we see that there is strong growth in Q1, which is honorable, but it is slowing down compared to the previous quarter and slower than leather goods. So what's your take on this relative drop in performance between leather goods and non-leather goods products?
Stock levels at the end of Q1 are relatively homogeneous across all of the regions, maybe a little bit lower for Greater China because of the Chinese New Year celebrations. And we will deliver to China to make up these stocks across the year. Now, for the other métiers, there is no overstocking. There is no scarcity either. We are very much on track with our plan. You know that our products are bought at the podium events. And we are delivering what was bought at the podium events on time. For ready-to-wear, it's important to deliver these products at the very beginning of the season so that they can be sold to our clients on time.
Now, there is indeed a small drop in silk and fashion accessories. That kind of ties in with what I said earlier, i.e., the slight drop in footfall in China that affected this aspirational demographic of our client base. It's really, yeah, down to Greater China, that drop for Q1.
Thank you. Now questions in English. Sabrina, over to you. The next question is from Ashley Wallace of Bank of America. Please go ahead.
Oh, hello. Thank you, Carole and Éric. I have two questions, please. The first one's just within the Leather division. I was wondering if you can share some high-level comments between what percentage of revenue now comes from the Kelly and Birkin versus the other Leather lines and how that compares to, say, five years ago. And then my second question is just around cost inflation. I know this is a sales call, but how should we think about cost inflation at Hermès in 2024?
How much cost growth do you budget for this year, essentially, considering the top line is quite strong?
Okay. So hi, Ashley. Just first question, Kelly Birkin. No change, which means then I'm sorry again not to communicate on the percentage, but no change. You have just a significant contribution within just the Leather category of more than 10 bags just contributing to the top line, which is quite consistent. So no change in the mix. Thank you. Regarding your second point regarding cost inflation, as you know, we have quite an exposure regarding fixed costs, as you know. So cost inflation continues to be just within our costs and weighing on the fixed cost of Hermès.
Yes. For this year, we estimated during the budget construction a cost increase of roughly 6% on average, all métiers included.
And this is, in fact, the price increase we applied in the Eurozone, 6%, and a little bit higher in the other regions due to the negative currency impact. And this is the operating cost increase, or this is the cost of production that you're talking about, the 6%? It's the cost of products. But the cost of labor is in line with raw materials.
Okay. And sorry, can I ask one clarification just because I'm on the translation? Just the comment on April, is it true that you said that the April revenue, the demand in recent trends, hasn't really changed versus Q1? I know it's only just two weeks, but maybe if you look at April and March together, is it fair that there's no change to the strong trend?
Well, it's a little too early, actually, to elaborate more. Two weeks is really not fully significant just regarding the second quarter. You need a little more time just considering your comparison days to 2023.
Okay. Thank you so much.
The next question is from Melania Grippo of BNP Paribas. Please go ahead.
Good morning, everyone. My name is Melania Grippo from BNP Paribas. I have got two questions. The first one is on what we read recently on the U.S. lawsuit. Could you please elaborate or tell us what are the next steps there? And the other one is on the FX impact. You benefited from last year at the gross margin level. Could you please remind us the amount on full year and first half and if we should still expect a full reversal of this? Thank you.
Okay. Well, thank you, Melania. First two points regarding the class action lawsuit. Just so you know, not many comments. Of course, we do not comment on the pending litigation today. What we can say nevertheless is that Hermès strictly complies with a competition law everywhere we operate and for years and that we will vigorously defend ourselves in the case. And sorry for that, but we cannot, of course, just elaborate more on the subject.
Your second point was on the gross margins, right? Hedging?
Sorry?
Yes. Yes. It was on the hedging impact, the effects on the potential reversal this year, how much you benefited last year on first half and full year.
Yes. As we mentioned when we published the results of last year, the impact of currency, negative currency impact, is higher than the price increase. Therefore, the gross margin will slightly decrease this year. It's expected to decrease slightly.
Thank you.
We're now going to go back to questions in France. May I have David from CIC?
Hello. Two questions on my part as well. The first one is on the Leather division. You said that growth of Q1 could not be the same across the year. Should we see a slowdown as soon as Q2, or will that take place later in the year? That's the first question. And secondly, regarding your staff costs, can you just tell us how many recruitments are planned for and what about increases in the payroll to keep up with inflation?
Okay. Well, just to go back to our annual objective, the pace of delivery is not going to trigger a slowdown in Q2. We are just slowly going to go down to a 50% rate for 2024 for Leather Goods. And then there'll be a ramp-up of our sites for each one. Now, for recruitments, we've planned 2,000 net recruits.
So net recruits mean that we're going to have 3,500 people and 1,500 people leaving, retiring, or for other reasons. The budget for increases in salaries for Europe, where we have 60% of our headcount, was 5%.
For this year, right?
Yes, for 2024, indeed.
Next question from Thomas Chauvet from Citi. Over to you.
Hello, Carole and Éric. Two questions. First of all, on the high luxury, so watches and jewelry, could you maybe say a little bit more on the slowdown of watches and compare this with the resistance and resilience of jewelry since they both enjoyed similar growth over the last 3-4 years? And there are two categories where you are doing your own distribution, including for watches.
Secondly, for other countries, and mainly the Middle East, and the 113% growth with Al Mana, which was brought up in Qatar, could you tell us why this figure is so high, 113%? I imagine that there's a multiplier, 2-2.5, because of retail conversion. But it means that organic growth is at 50% for Q1. So am I correct in my analysis or not? And what will be the impact for the profits of that region during the year? And just to follow up, Éric, on what you said on double-digit growth in Greater China, Macau, Taiwan, etc., were you talking about the first quarter or just the month of March?
Okay. On the last question, I was talking about the whole quarter. So for your first question, high luxury, watches, the comparison basis was very high. There is a slight drop in Greater China, which is in keeping with the Swiss watches exports, generally speaking. For jewelry, very strong growth last year, strong growth again this year. There are two things to pay in mind. First of all, an increase in volumes.
And secondly, an increase in value. Hermès, over the last year, made a lot of small and medium-sized jewelry. And here, medium-sized jewelry and its share is increasing. And the segment for high jewelry or high-end jewelry is also increasing. There's one métier where we have a strong value effect, and that is jewel making. And that helped us offset in China this slight drop in volumes. So we continue to invest in jewelry and in watches. We've integrated ourselves vertically to secure our supplies with longstanding partners who are very happy to work in even closer collaboration with Hermès.
Regarding the Middle East now, this project that you mentioned is part of a greater strategy. This was the first step. The second step of the strategy will take place in five years' time. We remain associated to our longstanding partner in the area. So the first step was to directly take on the stores in the UAE. And here, the impact that you can see on sales is due to the fact that we're consolidating in the group results the retail sales. So that explains the changes in the figures. And the ratio is from 1 to 2. It's not 2.5, like you mentioned earlier. So the 2-point impact is a bit less than that, in fact, on the turnover for Q1 and for the whole year. But the impact on profit will have an impact on the profitability of the group in 2025.
But for 2024, there technical effect with goodwill allocation effects. We'll be removing the first stock margin, which will be dilutive.
Thank you very much, Éric. Just a quick word on the top line. The 4 stores in Dubai, if there's a times-2 multiplier, it means that this region was growing very quickly. Yes, there is strong growth, indeed, in that region. So here, we've taken control of UAE. Then there'll be Bahrain, Kuwait, but that'll be later on.
Thank you very much.
There are no further questions for the moment. We would like to thank you very much for taking part.
Okay. Well, look, if there are no further questions, I suggest that we wrap up. Just like to say once again that we are very happy with our growth in Q1 in all geographical areas, especially, actually, in mature markets in France, Europe, and Japan.
The environment is more complex, but we are confident in the strength of Hermès, which has three main assets going for it. First of all, loyal local customers. And then our value strategy that has been rolled out in our different divisions and métiers. And finally, exceptional know-how, exceptional items with outstanding material. So this is why we are going to continue with our investments and recruitments as planned and with great confidence. Thank you very much. Have a great day. Goodbye.