Key insights
- Hermes shares experienced a significant decline due to an analyst's forecast of margin contraction in upcoming results, citing cost absorption and FX headwinds. This sector-wide concern also impacted other luxury stocks, suggesting potential headwinds for the luxury goods sector. While free cash flow is expected to remain strong, the margin pressure is a leading indicator of potential profitability challenges that could affect investor sentiment and valuations across the luxury market.
Investing.com -- Hermes (EPA:HRMS) shares fell as much as 6.2% on Monday following a Kepler Cheuvreux analyst note forecasting margin contraction in the luxury goods maker’s upcoming first-half results.
The decline marked the stock’s steepest drop since April 15. Hermes is scheduled to report first-half results before the market opens on July 29.
Kepler Cheuvreux analyst Charles-Louis Scotti said he expects a "mixed set" of earnings, with modest sequential sales growth acceleration but a 100 basis-point contraction of the adjusted Ebit margin. The analyst cited underabsorption of fixed costs and foreign exchange headwinds as factors weighing on profitability.
Scotti’s net profit and earnings per share estimates for the first half are 4% below consensus, reflecting a first-half-skewed phasing of French surtax. The analyst noted that free cash flow generation "should remain exceptionally strong."
The selloff in Hermes shares dragged down other luxury stocks on Monday. A Goldman Sachs European luxury basket fell as much as 2.9%, its largest decline since May 11. LVMH dropped 2.4%, Richemont fell 1.6%, Pandora declined 3.2%, Moncler slid 3.8%, Burberry lost 3.3%, and Brunello Cucinelli dropped 3.4%.
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