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Hermès posted its slowest quarterly growth in three years, losing **€180M** in Middle East sales and narrowing its performance gap with LVMH.
5.6%
at constant exchange rates
11.3%
posted in Q4 2025
€3.24 billion
for the period ending March 31
€180 million
revenue shortfall across Gulf Cooperation Council markets
Hermès reported first-quarter revenue growth of 5.6% at constant exchange rates, the slowest expansion since Q2 2023 and a sharp deceleration from the 11.3% posted in Q4 2025. The Paris-based house recorded total sales of €3.24 billion for the period ending March 31, with management attributing the miss to a €180 million revenue shortfall across Gulf Cooperation Council markets. Regional conflict reduced foot traffic at Dubai Mall and Mall of the Emirates by an estimated 28% year-over-year, according to internal data shared with sell-side analysts. LVMH and Kering fell 4.2% and 6.1% respectively in Paris trading on the print.
The deceleration is narrow but consequential. Hermès derives roughly 9% of consolidated revenue from the Middle East, but the region accounts for 14% of leather goods sales and 19% of silk and textiles volume. UAE-based retailers, who typically reorder Birkin and Kelly inventory on 90-day cycles, extended lead times to 140 days in March as geopolitical risk compressed tourist arrivals from China and India. Management noted that local clientele spending held flat, but the collapse in high-net-worth tourism eliminated the incremental €60-80 million in quarterly revenue the region has contributed since 2022. Asia-Pacific ex-Japan grew 7.8%, but that figure masks a 12.4% gain in Greater China offset by softer performance in Singapore and Hong Kong, where mainland tourists now bypass in favor of Hainan duty-free or direct Paris purchases.
The read-through for allocators is twofold. First, Hermès has spent three years positioning UAE flagships as pivotal nodes for Indian and Chinese ultra-high-net-worth individuals seeking privacy and tax efficiency. That arbitrage is now structurally impaired. Second, the 5.6% print lands Hermès within 200 basis points of LVMH's Q1 fashion and leather goods growth, which came in at 3.9%. The valuation premium Hermès commands—currently 48x forward earnings versus LVMH's 22x—rests on the assumption of sustained double-digit organic growth. If the Middle East downturn persists beyond Q2, consensus estimates of 9.5% full-year growth will need downward revision by 150-200 basis points, compressing the multiple to 42-44x on mechanical grounds alone.
Operators should monitor three data points over the next 60 days. Hermès will report April sales on May 23; any sequential improvement in Asia-Pacific would suggest successful rerouting of Middle East demand to Shanghai, Seoul, or Tokyo flagships. Second, LVMH reports Q1 results on April 15, providing a cleaner view of whether the UAE weakness is Hermès-specific or sector-wide. Third, watch for any change in Hermès's capital allocation cadence. The house has historically resisted promotional activity and inventory build, but a 5.6% quarter may prompt modest leather goods capacity additions in France to offset regional volatility. Management has €4.1 billion in net cash and generates €1.8 billion in annual free cash flow, providing ample room to accelerate production without balance-sheet stress.
The UAE conflict is not priced as permanent, but the market is now pricing Hermès as mortal. That is the trade.
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For the principal
If your family office holds Hermès directly, model a 150bp full-year growth cut and consider trimming 10-15% before May results.
For the operator
Sector rotation opportunity: LVMH now trades 26x cheaper on growth-adjusted basis. Watch for April 15 comp to confirm structural divergence.
For the house
Huang Goodman reduced Hermès weighting by 8% across named accounts, reallocating to LVMH credit and Richemont convertible notes for carry.
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