As strong as Hermès is in the capital market, its stock expectations were actually lowered?
Last week, RBC Capital Markets downgraded Hermès' stock rating from Outperform to Sector Perform and lowered its target price from 1,900 euros to 1,700 euros. The institution analyzed that Hermès' growth performance has led to a narrowing of the "growth gap" relative to the overall luxury goods sector.
At the end of July, Hermès released what appeared to be an outstanding semi-annual report, but after nearly a month of digesting the financials, the market gave a different verdict.
In this semi-annual report, the sluggish growth of the Chinese market is an unavoidable focus, and during the telephone conference after the release of the performance, Hermès Executive Chairman Axel Dumas put forward a unique "pork price theory" regarding the performance of the Chinese market. Simply put, he believes that pork prices can serve as a "barometer" for measuring consumer sentiment. With pork prices currently low, if they start to rise, it may indicate that consumers are once again willing to celebrate and consume, which in turn could mean that Hermès' performance in the Chinese market will return to high growth.
However, the market is not buying into Dumas' "pork price theory". Analysts believe that as a luxury brand previously recognized globally for being the most resistant to economic cycles, Hermès' growth gap with other luxury companies is narrowing. The market is starting to worry that the "perfect company" valuation previously given to Hermès may have exceeded the growth it can actually achieve in the future.
As one foreign media outlet aptly put it: Chinese middle-class consumers are not simply "downgrading" their consumption, but rather shifting towards the top of the product categories they can afford, rather than the bottom of expensive ones.
Perhaps Hermès has not lost Chinese consumers, but rather Chinese consumers are losing the urge to buy Hermès as if it's the only option.
Observing pork prices?
At the end of last month, Hermès announced its first-half 2026 results, with second-quarter revenue growing 6.7% to 4.09 billion euros at constant exchange rates, which seems decent. First-half revenue reached approximately 8.2 billion euros, up 6% year-over-year, with an operating margin of around 41%.
The financial report itself was not the issue, but on July 29, the stock price plummeted by about 11% at one point, a rare large drop of over a decade. The market value evaporated by about 19.7 billion euros in one day. According to data from Euronext Paris calculated by Le Figaro, as of August 26, Hermès' stock price has fallen by about 27% this year, falling back to around 1,550 euros from its high at the beginning of the year.
It's not that Hermès' platinum bags have suddenly stopped selling, but rather the market no longer believes the company can forever decouple itself from the Chinese consumer cycle.
In the second quarter, sales in the Asia-Pacific region (excluding Japan) grew by only 2.5%, compared to approximately 13.7% growth in the Americas and over 12% growth in Japan, indicating that Hermès' growth is increasingly reliant on markets such as the US and Japan, with China failing to pick up the slack.
For this performance, Axel Dumas, the sixth-generation family member and current executive chairman of Hermès, explained that the Chinese team has performed well and Greater China continues to post growth, though the pace has yet to return to previous levels. He also noted no significant improvement on the demand side.
Later, during the conference call, Dumas summed up his assessment of the Chinese market with three keywords: stabilizing, not yet rebounding, and unclear. His choice of indicators, however, was puzzling — he focused on three metrics: the property market, the stock market, and pork prices. He now gauges Chinese consumer confidence by tracking the price of pork.
Pork is an important indicator of people's willingness to celebrate, socialize, and host banquets, but now pork prices are very low.
The CEO of a top global luxury brand, when gauging when the Chinese will resume buying Hermès, has begun looking at the trajectory of Chinese pork prices as a barometer for when consumer sentiment will truly return. Many netizens have commented on this famous "pork theory," saying that Dumas understands neither China's pork market nor the current dietary and consumption habits of the Chinese people.
The capital market has revalued the "Hermès myth"
If looking solely at operational data, Hermès remains a top performer in the luxury goods industry. Full-year 2025 revenue exceeded €160 billion, with strong growth and profitability maintained throughout the year; first-half 2025 revenue reached €81.63 billion, up 6.1% at constant exchange rates, with recurring operating margin still at 41%. In the first quarter of 2026, there was also 6% growth at constant exchange rates, with 2% growth in Asia Pacific excluding Japan, and a "slight increase" in the Greater China region.
Two weeks after Hermès released its half-year report, Deutsche Bank lowered its target price for European luxury stocks, including Hermès, which fell about 2.5% on the day. Royal Bank of Canada Capital Markets subsequently downgraded Hermès' rating from "outperform" to "sector perform".
As of recently, Hermès' stock price is around 1,550 euros, with a 12-month average target price of approximately 1,870 euros given by the market. Royal Bank of Canada Capital Markets has also downgraded its stock price forecast from 1,900 euros to 1,700 euros, which seems to be completely logical.
According to Continental Journal, the analysis is based on Hermès' growth advantage of approximately 8% in 2025, which is expected to narrow to around 2% relative to the luxury industry average between 2027 and 2030. In other words, Hermès will still outpace its peers, but no longer by a commanding margin.
The UK's Financial Times noted that Hermès achieved an 18% sales compound annual growth rate from 2019 to 2024. Citi analyst Thomas Chauvet believes that this level of growth is "unlikely to be sustainable in the long term", and growth is now gradually returning to the high single digits. Meanwhile, as growth slows, investors are also starting to re-examine Hermès' high valuation relative to its peers.
Thus, some investment institutions' downward revisions of stock expectations are seen not as a crisis for Hermès itself, but rather as an "expectations crisis" for the brand.
Rise and fall with leather products?
Why has the market suddenly become dissatisfied with a company that is still growing 6% and has a profit margin of over 40%? Royal Bank of Canada Capital Markets pointed out a key issue: Hermès is becoming increasingly reliant on its leather goods.
Hermès, founded in Paris in 1837, is a benchmark company in the global luxury goods industry, with its own set of marketing and sales strategies, the most core of which is scarcity.
Hermès' strategy is not simply to sell a large quantity, but to ensure that each product generates extremely high profits, from a classic leather handbag to a small keychain.
With this combination, the customer structure is more inclined towards ultra-high-net-worth individuals, making it the "most resistant to economic cycles" in the luxury goods industry during downturns.
However, according to RBC Capital Markets analysis, "if sales don't accelerate meaningfully, Hermès' leather goods revenue growth could land around 9%-10% starting in 2027. Should leather goods growth slow in the future, it will become increasingly difficult for Hermès to sustain the kind of excess growth it has delivered in the past."
Data from the institution shows that from 2025 to 2030, leather goods are expected to contribute 63% to Hermès Group's revenue growth, up from 40% in the previous five years.
Hermès, of course, has products such as silk scarves, perfumes, and cosmetics, but its true brand assets and profit drivers are still its leather goods.
Leather goods are precisely one of the easiest consumer purchases for Chinese consumers to postpone. Meanwhile, with the rise of numerous Chinese affordable luxury brands, "accessible luxury" has become a new trend, joining forces with "guochao" to capture market share.
According to a luxury-goods analysis report from Bernstein, Chinese本土 leather bag brands are on the rise. Songshan Xia (山下有松), for instance, posted average annual sales growth of 59% between 2021 and 2025, versus just 13% for Coach. The report tracks five Chinese leather bag brands whose combined sales grew at a compound annual rate of 51% over the same period. Volume rose roughly 37% a year, while prices increased only about 10%.
Unlike many European luxury brands, these companies design, source raw materials, and manufacture their products entirely in China, leveraging the country's already mature leather goods supply chain. This setup increases flexibility in terms of development cycles and transportation costs. Many of these emerging brands also focus on digital marketing, directly reaching consumers while bypassing the costs associated with large international retail networks.
However, a conclusion by Shengbo Securities is also insightful - the pressure from these Chinese domestic brands is mainly on other "accessible luxury brands" such as US-based Coach and France-based Longchamp, as they are in the same pricing range. Meanwhile, traditional luxury giants, from Hermès, Dior to LV, have not been significantly affected.
However, the question remains: as Chinese consumers start to rethink "what kind of luxury goods are worth my money," can Hermès continue to maintain its past growth rate of 18%?