1H 2026 - Hermès Int'l
Increased domestic spending as outbound travel remains pressured in France
Before the bell, Hermès International reported its 1H results, showing a very slight acceleration in organic growth vs. Q1 2026. Relatively disappointing, while the margin beat was driven by the gross margin and solid sell-through. OPEX have continued to grow, and for Hermès to return to operating leverage (if that’s what investors are interested in), more top-line growth is required.
We see that we have aspirational customers who are suffering more than the resistance of wealthy customers. You see the resistance of Hermès is progressing from quarter to quarter from that standpoint. I think from that point of view, we are not changing our strategy. We try to always make the best products possible, whatever the product segment. - CEO Axel Dumas
Let’s review Hermès’ 1H performance and share why the underlying commentary sheds light on what we believe to be increased domestic spending and subdued outbound travel still.
Last quarter, we shared:
At this point, we stick to an “UNDERWEIGHT” view. As for LVMH (not within our scope of coverage), we believe its cyclicality and profitability risks pose more risks; both are not accounted for in today’s expectations. At the moment, it’s hard to see how EBIT growth can re-accelerate toward 7-8% to make the stock work again. Yes, its valuation has come down too, but simply riding a rerating isn’t durable (unless you’re in for a brief rally).
Right now, we believe the only investable option in high-end larger cap luxury isFerrari where the growing FCFs will be fully returned to shareholders in the form of dividends and buybacks. Ferrari’s just completed its first tranche of the multi-year 3.5 billion EUR program (250m EUR per tranche) ahead of schedule, and initiated the second one. We project about 900 million EUR in buybacks in FY 2026 and 1.2 billion EUR next year, or a combined impact of slightly less than 2% annually of today’s market cap. Over the next decade, we foresee about 15 billion EUR in buybacks - a notable step-up from the recent years’ activity. Meanwhile, EBIT should grow at about 7-8% or better annually.
At the end of this recap, we’ll also share our perspective on relative returns.