Hermès’ (EPA:HRMS) growth trajectory is expected to moderate as its valuation premium over peers declines, according to Jefferies in a note dated Tuesday.
The luxury group’s relative sector premium has dropped sharply from around 100% to roughly 50% since mid-April, reflecting investor caution over the absence of a re-acceleration in quarterly sales to double-digit levels in the first half of the year.
“Lack of meaningful acceleration in growth from early 2025 onward from brand extension drivers, and the group may be becoming disproportionately leather reliant,” Jefferies said, flagging the factors weighing on near-term expectations.
Jefferies forecasts third-quarter group organic growth of 9.7%, with revenues projected at €3.91 billion, slightly below consensus of €3.95 billion.
Regional performance is expected to vary, with France at 8%, Europe excluding France at 12%, the Americas at 12.5%, APAC excluding Japan at 6.5%, Japan at 14%, and the rest of the world at 18%.
Leather products are expected to continue driving growth, rising 14.5% in Q3 compared with 6.1% for non-leather items.
Within non-leather segments, ready-to-wear and accessories are projected to grow 8%, silk and textiles 2%, other Hermès sectors 8%, perfume and beauty are forecast to decline 2%, watches to rise 5.0%, and other products to fall 6.5%.
Jefferies noted, “The recognition that RMS’s much higher margins and its ROCE profile translate into lower expectations in terms of future FC growth,” signaling that premium valuations are increasingly factoring in operational efficiency over acceleration.
Jefferies’ mid-term estimates remain broadly unchanged. The firm projects group EBIT of €6.42 billion in 2025, €6.89 billion in 2026, and €7.59 billion in 2027, compared with consensus of €6.46 billion, €7.07 billion, and €7.83 billion, respectively.
Key assumptions include group ex-foreign exchange growth of 9.7% and 8.4% in the second half of 2025, followed by 8.9% in 2026 and 9.5% in 2027.
Gross margins are expected to decline by 21 basis points in H2 2025 and 30 basis points in 2026, before improving 10 basis points in 2027.
Operating expenses are projected to remain elevated, increasing 5.6% including foreign exchange in H2 2025, following a 9.4% rise in H1, with further increases of 6.3% in 2026 and 9.2% in 2027.
Jefferies maintains a “hold” rating on Hermès with a price target of €2,300, which equates to a 2026 estimated P/E of 47.8x and EV/EBIT of 33.4x.
The brokerage said that their hold rating reflects a balance between the potential for the brand to drive sales growth against larger luxury brands and the tempered expectations from high margins and ROCE.
Upside and downside scenarios underscore the range of potential outcomes: strong demand for Birkin bags could lift organic growth above 15% annually and boost EBIT margins above 41%, while tighter measures on ultra-high-net-worth individuals in China and U.S. liquidity concerns could reduce growth to around 7.5% annually, with EBIT margins dropping to 38.6%.
The analysis indicates that Hermès’ near-term growth momentum may be slowing, and the narrowing valuation premium suggests investors are recalibrating expectations for the luxury group’s performance, particularly as leather remains the primary driver of expansion.
