Key Takeaways
- Hermès‘ (RMS) Q3 sales rose 4.3% at constant exchange rates to €4.1 billion, a little short of what analysts expected, as leather goods grew 10%.
- Its pricing power looks intact: gross margin rose to 71.1% in the first half of 2026, and operating margin held at 41.0% despite a currency hit of more than €360 million.
- Most of the weakness is outside leather goods: ready-to-wear and accessories is up 1% in the quarter, and sales in Asia outside Japan were growing.
- Management expects next year’s price increase to be slightly smaller than this year’s, and the full-year report in February is the next test of the margin.
Hermès raised its prices again this year. Its Q3 report on Oct. 22 was the latest test of whether the world’s wealthiest shoppers are still paying up.
Sales rose 4% at constant exchange rates to €4.1 billion, a little below the 5.2% analysts expected, and shares fell on the news.
The more useful answer is in the margins, and they look a lot better than the top line.
What exactly happened
Hermès handed in a mixed quarter:
- Q3 sales: €4.1 billion, up 4% at constant rates, slower than the 9.6% growth in the same quarter of 2025.
- Leather goods and saddlery: €1.91 billion, up 10.8%, faster than the 10% growth in the first half.
- Ready-to-wear and accessories: €1.14 billion, down 2%.
- Asia excluding Japan, its biggest region, is growing, as Greater China stayed flat. Europe outside France grew 10%.
Sales for the first nine months reached €12.3 billion, up 5.5% at constant rates, even though currencies took about €310 million off revenue.
Hermès also stood by its full-year outlook “despite the deterioration in the macroeconomic and geopolitical environment.”
Customers are still paying up
Hermès reports profits only twice a year, so the latest margin figures are from the first half.
Gross margin rose to 71.1% from 70.7% a year earlier, and management put that down to tight inventory and strong sell-through. If price increases were scaring buyers away, unsold stock would pile up, and gross margin would slip. It rose instead.
Operating margin held at 41.0%, against 41.4% a year earlier, even after currencies took more than €360 million off revenue. Free cash flow (Hermès calls it available cash flow) rose 18%.
That 41% isn’t far off Hermès’ own best. Its operating margin hit a record 42.1% in 2023.
Over the same stretch, the rest of luxury has had a much rougher time: Kering’s Gucci has now reported twelve straight quarterly declines in sales. Hermès’ margin moved by four-tenths of a point.
The bags are doing most of the work
The waitlists for the Birkin and the Kelly keep demand ahead of supply, and that shows up in the numbers.
Leather goods made up 46% of sales in the first nine months and grew 10%. Ready-to-wear and accessories grew 1%, perfume and beauty fell 1%, and watches fell 2%.
The group margin mixes all of those businesses together. So a 41% margin shows that bag buyers are still paying up.
It shows much less about the shopper looking at scarves, perfume or watches. Limited growth in sales in Asia outside Japan is the other weak spot.
What’s next
Hermès is still raising prices, just a bit less than before. On its first-half call in July, management said, “What we can estimate today is that the price increase will be slightly lower than the one that we applied this year.”
My read: that’s a company that knows its customers can take another increase and doesn’t want to push them too hard while China is soft.
The stock isn’t cheap. At about 28x this year’s earnings estimate and 27x next year’s, investors are paying for exactly the pricing power the margins show.
Bottom line: Hermès’ customers are still paying up, at least for the bags, and that’s the business the premium rests on.
Of course, Asia and the businesses outside leather goods could still drag on the second half, and the full-year report in February will show whether the margin held.
So what is Hermès stock actually worth?
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