AN EVALUATION OF THE BUSINESS AND FINANCIAL PERFORMANCE OF

HERMES FROM 1ST JANUARY 2022 TO 31ST DECEMBER 2024

ACCA NO:4731067

PERIOD 51 NOVEMEBER 2025

SUBMISSION DATE: 6-11-2025

WORD COUNT:

RESEARCH AND ANALYSIS PROJECT: - 7489 words

SLS: - 1970 words

 ACKNOWDGELEMENT

I would love to thank my mentor Mr. Jenga for walking with me through the research
journey as well as my teachers from Nirvana Tuition.
 LIST OF ACRYONYMS AND ABBREVIATIONS

ROCE RETURN ON CAPITAL EMPLOYED

GPM GROSS PROFIT MARGIN

OPM OPERATING PROFIT MARGIN

LVMH MOET HENNESSY AND LOUIS VUITTON

FY FINANCIAL YEAR

NYC NEW YORK CITY

CM CENTIMETRES

E.G EXAMPLE

CSR CORPORATE SOCIAL RESPONSIBILITY

NFP NON-FINANCIAL PERFORMANCE

& AND

CAGR COMPOUND ANNUAL GROWTH RATE

U.S UNITED STATES

W.C WORKING CAPITAL

N.D NO DATE

CRM CUSTOMER RELATIONSHIP

CONTENTS

....................................................................................................................... 1
CHAPTER ONE........................................................................................................ 6
PROJECT OBJECTIVES AND OVERALL RESEARCH APPROACH............................7
1.1 REASON FOR CHOOSING THE TOPIC........................................................7
1.2 REASON FOR CHOOSING THE COMPANY.......................................................7
1.3 COMPANY PROFILE........................................................................................ 8
1.4 RESEARCH OBJECTIVE....................................................................8
1.5 RESEARCH QUESTION.........................................................9
1.6 OVERALL RESEARCH APPROACH................................................9
CHAPTER TWO..................................................................................................... 10
2.0 INFORMATION GATHERING AND ACCOUNTING/BUSINESS MODELS...........10
2.1 INFORMATION GATHERING..............................................................11
2.2 SOURCES OF INFORMATION......................................................................11
2.2.1 Internet................................................................................................... 11
2.2.2 Library................................................................................. 11
2.3 Limitation of data gathering.......................................................11
2.5 BUSINESS/ACCOUNTING MODELS.....................................................12
2.5.1 Ratio analysis................................................................................... 12
2.5.2 Advantages of ratio analysis................................................................13
2.5.3 SWOT ANALYSIS...........................................................................14
2.5.4 ADVANTAGES OF SWOT.....................................................................14
2.5.5 PESTLE.........................................................................15
2.5.6 Advantages of PESTLE........................................................................... 16
CHAPTER THREE.................................................................................................. 17
RESULT, ANALYSIS, CONCLUSION AND RECCOMENDATION..................................17
3.0 SWOT ANALYSIS..................................................................................... 17
3.1.1 STRENGTHS......................................................................................... 17
3.1.2 WEAKNESSES................................................................................... 18
3.1.3 OPPORTUNITIES.........................................................................20
3.2 PESTEL ANALYSIS.................................................................................... 22
3.2.1 Political factors.................................................................................... 22
3.2.2 Economic factors.................................................................22
3.2.3 Social factors.........................................................................23
3.2.4 Technological factor................................................................24
3.2.5 Legal factors......................................................................24
 3.2.6 Environmental factors...........................................................25
FINANCIAL ANALYSIS............................................................................................ 26
3.3 PROFITABILITY RATIOS..........................................................................26
3.3.1 Gross profit margin.............................................................................. 26
3.3.2 Operating profit margin.....................................................................27
3.3.3 ROCE............................................................................................... 28
3.4 Liquidity ratios........................................................................................... 30
3.4.1 Current Ratio...................................................................................... 30
3.4.2 QUICK RATIO......................................................................................... 31
3.5 Gearing ratio.................................................................................................. 33
3.5.1 Debt to equity ratio..........................................................................33
...................................................................................................................... 33
3.6 Efficiency Ratios............................................................................................. 35
3.6.1 Receivables days................................................................................ 35
CONCLUSION....................................................................................................... 36
CHAPTER ONE
PROJECT OBJECTIVES AND OVERALL RESEARCH APPROACH
1.1 REASON FOR CHOOSING THE TOPIC
After careful consideration of all the topics availed in the OBU guide, topic five turned
out to be the best pick for me. This topic will aid in development of analytical and
other critical skills through evaluation of financial statements of an entity that
performed exceptionally well. This provides an opportunity to apply knowledge that
was acquired in different units that I covered in my ACCA course. It will act a bridge
between the knowledge that was acquired in class and the application of the same in
the real business world.

1.2 REASON FOR CHOOSING THE COMPANY

The choice of company was dictated by the topic chosen above. I scanned far and
wide in search of a company that has performed exceptionally in the recent past.
After an extensive review of different companies in different sectors, Hermès stood
out. In the recent past Hermes has consistently delivered top tier financial results in
the global luxury market characterized by high profitability, sustained growth and a
strong balance sheet, (GlobeNewswire,2025). It has an influential recognition
globally in the luxury market as compared to its peers in the industry. Its effective
planning in the global market has enabled its positioning in high end luxury goods.
This research enables us to understand strategic measures and market positioning
that have contributed to the splendid performance of Hermes and how it has
attracted and maintained the loyalty of its affluent customers.
LVMH which is a close competitor in the luxury industry was chosen as the
comparator. After analyzing the various companies in the luxury industry, I was able
to identify LVMH as the major challenger/competitor of Hermes. The two giants have
adopted strong business models that they apply to thrive in the same competitive
industry. Therefore, LVMH became a worthy comparator that will help in gaining a
deep understanding of Hermes and the industry at large.
1.3 COMPANY PROFILE
Known for its elusive products, the Birkin and Kelly bag was founded in 1837 by
Thierry Hermes as a wholesale business providing harness to carriage builders. In
1879, Emile-Charles Hermes opened a store in Paris “Hermes-flagship store” and
started production and sales of saddles and other equestrian accessories to high
social class netizens.
Later on Hermes branched into luggage and luxury travel goods as well as silk
scarves for women to wrap their heads on long journeys .Hermes son then ventured
into travel-related items to accommodate various emerging mode of transportation
but still withheld the company equestrian heritage while still providing the requisite
tool for sports ,horse-riding ,which became even more prestigious form of
transportation and replaced the carriage (Milbank 2014)
In the hierarchy of luxury handbags, Hermes is the uncontested leader, and its
products classified as the equivalent of Rolls Royce or Chanel l couture suit (Thomas
2007). Its earliest style was the Haute a Courriers bag designed by Emile – Maurice
Hermes in 1900s. A single Hermes handbag requires 18-25 hours of labor in Paris
workshop with a production output of about five bags per week (Jacobs 2014).
All its bags are crafted in France. Majority of bags are allocated in stores in NYC,
Beverly hills, Las Vegas, and Honolulu. Assortment of Birkin is based on material
used: ostrich, crocodile, and exotic alligator skins. Size for the bags are 28,30,35 and
40 CM. Limited novelty models’ bags include Sailor Birkin, Golf Birkin, Flag Birkin,
and 2-tone Birkin made available based on seasons.
Hermès recognizes the importance of e-commerce and has adopted an approach
that makes a limited range of products available for purchase online (Okonkwo
2014). Its comparator LVMH, also part of the luxury brand, deals with diversified
sectors e.g., wines and spirits, fashion and leather, perfume, and cosmetics and
more.

1.4 RESEARCH OBJECTIVE

The aim of the project is to evaluate, analyze and assess Hermes’ performance from
2022 – 2024 and to understand the reasons behind its exceptional performance.
The objective of the research has is below as follows:
 To use key ratios to perform financial analysis on Hermes in comparison with
LVMH for the years 2022 – 2024
 To evaluate the effects of internal factors and external factors on the
performance of Hermes using SWOT analysis
 To evaluate the effect of external environment on the performance of Hermes
through PESTEL analyses

1.5 RESEARCH QUESTION

1. How was the comparative financial performance of Hermes over the three-year
period of 2022-2024.
2. How did the internal and external factors (SWOT) affect the performance of
Hermes?
3. How did the external factors (PESTEL) affect the performance of Hermes?

1.6 OVERALL RESEARCH APPROACH

Regardless of any dynamics, proper planning is an essential ingredient for
achievement. I embarked on this journey by gathering background information about
my topic after obtaining clear guidelines from the information pack available in the
ACCA website. After evaluating all the topics critically, I chose topic five.
After evaluating many companies in various industries, I was able to settle with the
luxury brand companies. With my love for designer bags, I was able to blend easily
and chose Hermes with LVMH as comparator. I then scouted for a mentor and
organized the first virtual meeting as this would be efficient in the planning process.
In search of answers to my research questions I sought for readily available sources
of information about Hermès Luxury brand. I gathered data from secondary sources
which included: - annual reports, journals, magazines, and other publications.
Data analysis followed next, which called for the choice of appropriate accounting
and business models. I conducted financial analysis of Hermes in comparison with
LVMH using ratio analysis. Non-financial analysis was done through SWOT that
analyzed internal and external factors of the firm and PESTLE that focused on
external market factors affecting Hermes.
This process was facilitated by the guidance from my mentor which was very
instrumental for successful completion of the research process.

CHAPTER TWO

2.0 INFORMATION GATHERING AND ACCOUNTING/BUSINESS MODELS

2.1 INFORMATION GATHERING
This is the process of collecting data and facts from various sources to learn more
about a particular subject matter.

2.2 SOURCES OF INFORMATION

There are two major sources of data, primary and secondary data. Primary data is
collected firsthand by a data collector to use for a specific purpose. It is collected
mostly via interviews and surveys. Secondary data involves the use of existing
information that serves a different purpose.
Sources of secondary data include books, journal articles, and the company’s annual
report which offer insights into the company’s financial health.
The following are secondary sources of data.

2.2.1 Internet
It provides extensive information that can be used to gain insight into issues. Having
used search engines such as Google Scholar to retrieve information that was
incorporated during the research project, some of the data that was retrieved from
the internet is the Hermes and LVMH annual reports and financial statements
extracts.

2.2.2 Library
Visiting several libraries across my area of reach in search of textbooks with relevant
information for this research. ACCA textbooks were among the books I heavily
depended on for relevant details relating to accounting and business models, among
others.

2.2.3 Journals and magazines

This became a key source of information for this research. Luxury brands industry is
one of the key industries in the global economy and as a result there is a vast pool of
information in relation to it. Being able to access current information and trends in the
luxury brand pool from various journals and magazines. This was made much easier,
efficient, and productive through readily available information.

2.3 Limitation of data gathering.

During the research some of the challenges faced were in comprehending Industry
reports as they were extensive and comprehensive and therefore time consuming.
In addition, some of the sites to obtain readily available information had to be
purchased and therefore becoming difficult to access.
Information available on the internet was voluminous, unrelated to the search and
some are not useful for academia purposes therefore being too irrelevant in relation
to the research. Quality of information employed was quite crucial. This called for
more time to sort the information and validate the sources becoming a tedious and
time-consuming process.

2.4 Ethical Issues during information gathering.

To bestow the true view of the company and reduce chances of biasness, I
employed ratios and accounting and business models to have vivid view and at the
same provide an equilibrium scope.

Use of Chat Gpt as a medium of obtaining information was tempting since it was
unethical according to ACCA guidelines. Facing these challenges, I remained ethical
and maintained professional integrity and originality as I am bound by ACCA codes
of conduct.
In addition, I had to reference all my sources using the Harvard system and to avoid
plagiarism I employed use of Google Scholar as a medium of obtaining academia
information.

2.5 BUSINESS/ACCOUNTING MODELS

They help us understand, interpret, and analyze an environment in its financial as
well as business aspect. During my research, the models employed were Financial
Models, PESTLE, and SWOT as they all impact on a company’s performance.
2.5.1 Ratio analysis
Is the quantitative technique used to compare companies and market. The model will
help in gaining critical insights into the financials of Hermes in comparison with the
comparator LVMH.
Ratios are divided into categories namely.

 Profitability
 Liquidity
 Efficiency
 Investors
 Solvency

Ratios employed during the research were:

1. GPM
A metric that shows how much a company is left with after removal of Cost of goods
sold. The higher it is the more efficient cost management is.

2. OPM
Measures the profit a company can make after covering its operating expenses. It is
a major indicator of the core of business health.
3. ROCE

Measure that shows how much profit a company makes. A higher ROCE is more
efficient.

4. CURRENT RATIO

Assesses by how much your current assets can cover your current liabilities.

5. DEBT TO EQUITY RATIO

It indicates a company’s financial leverage by comparing all its liabilities to

shareholder equity.

6. RECEIVABLE DAYS
 Indicates how much time a company takes to collect its debt.

7. QUICK RATIO
Measures how a company can have assets turned to cash fast to pay short term
liabilities.

2.5.2 Advantages of ratio analysis

1. They help with improving financial planning and forecasting by providing strategic
plans that identify strong or under-preforming departments.
2. Allow room for bench marking to assess areas of strength and weakness.
3. They help in trend analysis by identifying areas of improvement or problems in
liquidity, profitability, and efficiency.

2.5.3 SWOT ANALYSIS

It is a strategic planning and management matrix that helps a company to identify its
strengths and weaknesses, opportunities, and threats of a company. This tool will
facilitate the analysis of the internal factors (Strengths & weaknesses) and the
external factors (Opportunities & Threats) of Hermes. This is important in the
identification of the factors behind the exceptional performance of the luxury giant.
The expanded meaning of the acronym SWOT.

A) Strength -These are controllable internal positive factors that enable us

to know why Hermes is performing well, that is, use of exotic skin brands
during its manufacturing process.
B) Weakness -These are internal negative factors that point out any
deficiency in Hermes and how they can manage the deficiency; Extreme
measures it has put in place to curb production of counterfeit Birkin bags.
C) Opportunity -The prospects and external factors that Hermes can
capitalize on to remain among the most elite luxury brands.

D) Threats -These are uncontrollable factors from external negative

factors and adversely affect the success of Hermes.
 2.5.4 ADVANTAGES OF SWOT
1. Allows Hermes to assess its strength and improve on its weakness
through highlighting them. Use of exotic skin brands that improve quality of
their products in addition to it putting up strict measures to prevent production
of counterfeit products.

2. It enables Hermes to assess its major growth opportunities, which are

expansion into markets, and more tech surveys to attract young people,
especially on online purchase platforms.

3. It enables Hermes to allocate its resources better by focusing on high

priority areas as well as taking measures in areas where sales are low due
to scarcity of their products.

2.5.5 PESTLE
The model previously known as ETP (Economical, technological, and political)
invented by Francis J. Aguilar in 1967. It later evolved to PEST and later expanded
to PESTLE (Political, Economic, Social, Technological, Legal factors and
Environmental factors. The model will facilitate the evaluation and analysis of how
the external environment has affected the performance of Hermes. It will also
evaluate how Hermes has responded to the opportunities and threats emanating
from the external environment.
This is the breakdown of PESTLE:
[Link] factors –they affect the tariffs, import/export regulations, and diplomatic
tensions especially between France, China, and the US) can impact material
sourcing and distribution

2. Economic Factors -This brought about by currency fluctuations affecting

profitability especially given Hermès’s reliance on non-EU markets.
[Link] factor – This is brough about by the dynamic changes in today’s
modernizing world especially with the rise of quiet luxury plays directly into Hermès’s
DNA

4)Technological factors - is rewriting how luxury is experienced. Blockchain

authentication can combat counterfeits and protect brand integrity.

5)Legal Factors- Global minefield is a battle of regulation. Intellectual property

protection is critical as Hermès constantly battles counterfeits.

6)Environmental factors -consumers demand eco-conscious production, traceable

leather, low-impact dyes, and circular design.

2.5.6 Advantages of PESTLE

It allows Hermès spot risks before they explode from political trade barriers to
shifting cultural value. Luxury is fragile; reputation damage can cost billions. Early
awareness protects and saves the brand from further losses.
Through analyzation of political and economic climates, Hermès can decide where to
expand its bases and where to stay exclusive or also be able to select it dominant
area.
It helps Hermès adopt digital strategies such as block chain authentication. This
prevents resale in the market especially with many counterfeit products on the loose.
Blockchain gives every Hermès bag, watch, or scarf a digital certificate of
authenticity that cannot be forged or altered.
CHAPTER THREE

RESULT, ANALYSIS, CONCLUSION AND RECCOMENDATION

3.0 SWOT ANALYSIS

3.1.1 STRENGTHS
Unrivalled Brand Prestige and Heritage
Its accredited title to unrivalled brand prestige and heritage comes about from its
global identification as a symbol of opulence and exclusivity. This strongly resonates
to its long -standing legacy of quality and craftsmanship. (Saxo, 2024). The balanced
brand strategy spread across its products categories has reinforced a unified image
of handcraft excellence and iconic designs (Martin Roll, 2020).
As the universal giant in luxury, Hermès has a great influence in marketing across
several regions by fully using its potential to get across many while maximizing cost
efficiency through economies of scale (Saxo , 2024).Hermes outstanding
performance is majorly linked to the business models its encompasses in its strategy
(Hermes 2023) that is characterized by strong pricing power , scarcity-driven
exclusivity, and total control over its distribution channels (Deppen , 2025).The back-
bone to all this is its spirit of conquest, creativity ,craftsmanship, quality, authenticity,
and independence ,which together sustain its stature and unique position in the
global luxury market (Martin Roll , 2020).This strategy reflects the brand’s enduring
philosophy of quality over quantity, ensuring that each product upholds Hermès’
artisanal heritage while sustaining its aura of scarcity and desirability

Exceptional Craftsmanship and Quality

Hermes upholds a crafts-based production model in comparison to other luxury
brands in the market (Business of Fashion, 2025). Not only does this craftsmanship
ensure exceptional product but also deepens the emotional connection between
brand and its customers (Business of Fashion, 2025). Globally known for blending
aesthetics excellence by producing items of classified craftsmanship (Hermès Paris
2024).
Each creation handcrafted by an artisan signifying the brand’s commitment to
individuality and traditional savoir-faire (Martin Roll, 2020). During 2024 a women’s
fragrance inspired by its heritage in leather craftsmanship alongside Hermessence
Oud Aleza received strong consumer acclaim (Hermès Paris, 2024).
To uphold these standards, Hermès limits recruitment to approximately two hundred
artisans annually to which they must undergo 2-year compulsory training (Martin
Roll, 2020). Likewise, recent additions to its leather goods collections have achieved
significant success, reaffirming Hermès’ leadership in creativity and craftsmanship.

Financial Resilience and Strong Profitability

Hermes continues to challenge the extensive luxury fashion slowdown, reporting
sustained revenue growth over the quarters (Deppen, 2025). Unlike its rivals, the
company has maintained its dominants clientele in the luxury field dynamics and a
business model engraved in with a long-term value creation (Hermes, 2024).
Between 2021 and 2024 a steady double growth was seen, posting a CAGR that
went beyond 19% in sales (Fashion BI, 2025).
Hermes operating profits remained strong at 42.07% in 2023, compared to 40.53%
in 2024 (Hermès Paris, 2024). This is a remarkable performance in the luxury
environment highlighting its efficiency, (Fashion BI, 2025) and operational resilience
(Hermès Paris, 2024) despite the currency pressure and unstable global demand
(Fashion BI, 2025).

3.1.2 WEAKNESSES
Extremely High Price Points
Hermès’ inflated price points fortify its brand equity and profit margins (Fashion
Bi ,2025). In addition, it limits market accessibility and increases exposure to
economic variations (Forbes, 2025). It is also known that the brand that does not
offer discounts therefore, upholding its aura of uniqueness and maintaining high
profit margins (Ewa Publishing, 2023). Hermes uses a premium pricing approach
that resonates strongly to luxury consumers who associate higher prices with
superior craftsmanship and status (Ewa Publishing, 2023). Prices ascend higher in
secondary markets with different Birkin’s priced at different prices: a pristine Birkin
35 can fetch approximately USD 20,000 (Sotheby’s, 2025).
With the weakening global luxury consumptions and forecast of global luxury sale by
2-5% (Econo Times, 2025), Hermès continue to face a delicate balance between
price increase and consumer demand (Mimosa Spencer & Samantha Marshak,
2025). Hermès has so far navigated these challenges effectively. The company
maintained its sales growth of above 2% as of July 2025(Econo Times, 2025) even
after implementing a new price list at the start of the year (Purse Bop, 2024).

Limited Production Capacity and Scalability

Hermes has a strong global demand that outweighs its production capacity (Euro
news ,2022) majorly around the leather goods division. In addition, there is
intentional cap of leather goods production by 6-7% (The Business Times 2022)
yearly that is guarded towards its prioritization of exclusivity and craftsmanship.
Due to self-imposed production limits, a vivid fall in shares of 7% was seen at
Hermes company (M. Spencer and Silvia 2022). It was later reported that sales
growth slowed down majorly due to capacity constraints and an intentional resolution
to maintain regulated production levels (Business of Fashion , 2022).In a statement
the Executive chairman Axel Dumas reaffirmed that, , “Even if there’s a lot of
demand, I’m not going to start doing them in 13 hours to raise production”
(Euronews , 2025).This portrays that irrespective of it being an enigma in the luxury
world of production there is scarcity in leather products which limits large scale
production.

Overreliance on leather products

Leather goods and Saddlery division take up 40-50% of Hermes total revenue. This
enlightens its dependence on this product (Hermès Paris, 2024). Taking this into
consideration, the overreliance on leather goods is the primary contributor to its
overall revenue (Leather International,2024)
One of the challenges faced by it is in implementing a diversification strategy, given
the exclusive nature of its brand and marketing model, which emphasizes scarcity
and artisanal craftsmanship (Martin Roll, 2020). Placing a cap volume of 6-7% yearly
in the volume of leather goods (The business times 2022) while maintaining long
waiting lists to preserve desirability rather than heisted production. The chair also
clearly expressed no desire to alter its controlled approach (Euronews, 2022). Such
dependency heights will lead to Hermes vulnerability, especially in shortage of
animal-based materials. This exposes it to potential market and operational risks.

3.1.3 OPPORTUNITIES
Expansion into emerging luxury markets
In the heart of the city at Jio Heart plaza a new store was launched on 25 th April. The
launching of this store was a reaffirmation of the relationship between India and
Hermes since 2008 (Hermes ,2024). With its continued aim to strengthen vertical
integration as well as global recognition (Luxuo 2022), Hermes has enhanced control
over its brand experience and distribution channels. This was seen through it
consolidating its operations in key luxury markets by acquisition of its Dubail and Abu
Dhabi concessions during the year 2024 (Hermès Paris, 2024).
With this into consideration, further stores and refurbishment is targeted location was
seen; Shenzhen ([Link],2024) aligning with its philosophy of controlled, organic
global expansion (Hermès 2024). With Hermes strategic intervention in
strengthening its footprint in culturally vibrant retail districts.
One of the city’s most artistic and design-forward luxury hubs, located in Mumbai,
Kala Ghoda (Mint ,2022) represents Hermes’ commitment to position its boutiques
within architecturally rich and culturally resonant environments that align with the
brand’s identity.

Digital & E-Commerce Growth in Luxury

With the current generation leaning toward online shopping, this is forcing most
luxury brands to start investing online as well as revisit their distribution
strategy(KPMG Assets,2024).
Moreover, luxury brands that feared or were rather slow in adopting online
advertisement for their brands fear losing their exclusivity and have decided to
embrace the omni channel quotes especially for the Gen-z’s ‘Wharton School’
(Knowledge at Wharton 2020).
Shaping luxury e-commerce, younger shoppers prefer to discover and explore
products via social media platforms (Shopify 2025). This information is crucial for
Hermes as initially it focused more on one-on-one experiences when you visit their
shops.
However, with times changing, especially the young shoppers, Hermes needs to
strengthen their online presence as this is an opportunity for them. They can
incorporate e-commerce, digital marketing and experience without losing its
exclusivity if conducted with caution therefore improving its profitability

3.1.4 THREATS
Counterfeit & gray market explosion.
According to relevant sources, Birkin bag has reported to be among the luxury bags
with the highest counterfeit rate (Business Insider Africa 2025). Between February to
April almost 1718 videos on TikTok reported to have been dupes, fakes or even
replicas (Business Insider Africa 2025).In 2022, Hermes sued Mason Rothschild
after he sold an NFTs depicting Birkin Bags (News24,2022) without seeking
permission from the French Luxury thereby tricking its customers into believing they
had a collaboration with them to sell the product (Euronews , 2023).
Hermes has placed extreme measures in place to fight against the crime; through
payment of damages if caught (Hermes ,2024).

Overreliance on limited production

The brand’s strong reliance on leather may be a shortcoming as this exposes it to
supply chain vulnerabilities (Hermes 2 ,2024). This comes about with Hermes relying
on leather goods, the Birkin generates $12000-$100000 in revenue ( Daniel Scrivne,
2025)
With strategic intervention, a cap of 6-7% (Indian times ,2022) of its good leather
production was induced to preserve quality and exclusivity of Hermes creations
(Euronews, 2022). This led to Leather and Saddlery division revenue fall by 5.4%
due to its capacity constraint during that period (Euronews, 2022) which caused
limited and tightened production runs in Hermes creations (Hermès, 2024).
While leather craftsmanship remains central to the brand’s identity, this
concentration exposes Hermès to potential market and operational risks.

Economic Instability and Currency Fluctuations

With unfavorable currency movement’s especially depreciation of Asian currencies
against the euro impacted on a negative translation effect on sales (Investing 2024).
Variations in the Japanese yen, Chinese yuan, and U.S. dollar against the euro
can impact the group’s operating margins and profitability (Fashion bi,2025).
Asia-Pacific region plays a significant role representing 40-50% of sales as majority
of Hermes sales obtained from these parts (Hermes ,2024). Taking this into
consideration, economic or political instability around this area has an impact on its
performance (The strategy story 2024).
Major markets such as China, Europe and the United States have shown sensitivity
to economic fluctuations in the worldwide luxury market (Euro news ,2024)
accounting for the majority of Hermes revenue (Hermès Paris, 2024).

3.2 PESTEL ANALYSIS

3.2.1 Political factors

High import duties and custom charges are a barrier to imported luxury goods in
India. In 2024, India has maintained one of the highest import and custom duty
among major emerging economies (India connected ,2025) creating a barrier for
luxury brands to establish their presence in the market (CCI FRANCE- INDE 2024).
In 2023 the Government proposed a 20% rate on international card purchases above
a certain threshold (Outlook Business desk 2023)., This would encourage domestic
luxury shopping as consumers would rather purchase luxury items from home than
abroad to avoid the high levy fee favoring shopping in Hermes India (Economic
Times 2023)
Hermes profitability and pricing are influenced by political relations and trade policies
between different regions. This has negatively affected Hermes revenue
performance as well as deterioration in trade may disrupt supply chains, raise tariffs,
or reduce brand sentiment (Luxonomy, 2025).
In conclusion, high taxation environment continues to constrain demand and
profitability for foreign luxury brands like Hermès (The print 2025)
3.2.2 Economic factors
A strong euro can reduce reported revenue from non-European markets (Hermes,
2024), while weaker emerging-market currencies may constrain local purchasing
power (Telegrafi 2025). In 2024 GPM was 70.26%. This cause by the impact of
currency hedges leading to a drop in China that affected the sales and sell-through
rate (Investing .com,2024). Hermes can employ hedging to mitigate risks but the
stronger the Euro the more reduced the margin.
Inflation and rising direct costs increased the total cost base for luxury goods (KPMG
assets ,2022). In response, Hermes increased its price to preserve profitability
luxury. That said, overly aggressive pricing risks are alienating certain customer
segments. Despite the cost pressures, Hermes has maintained an OPM of 40.5% in
2024 portraying its exceptional pricing power and operational efficiency (Fashion BI,
2025).

3.2.3 Social factors

Hermes has minimized its online presence, allowing exclusivity and access of their
prized collection to only its top clientele (AMW 2025). This has made customers visit
their physical boutiques. This approach has reinforced exclusivity while
strengthening in-store experiences and personalized service (Content Hurricane,
2025). In addition, investment focuses on Soley on advertising while allowing
selected magazines that are curated to be in line with its refined image (Brand Vision
insights 2024). This not only allows its craftsmanship but also allows product quality
to speak for itself while marinating its prestige and aura of rarity (Brand Vision
insights, 2024). This managed digital strategy has enabled brand desirability, pricing
power differentiating Hermes from its competitors who rely heavily on mass digital
platforms. This has strengthened Hermes’ position as a symbol of exclusivity and
long-term brand equity.
Moreover, this translated into strong financial performance. With its exclusivity over
mass digital reach. Hermès has increased brand desirability and pricing power,
enabling consistent price adjustments without volume loss (Luxonomy 2025).
Despite this, Hermes maintained an OPM of 40.5% in 2024 portraying its exceptional
pricing power and operational efficiency (Fashion BI, 2025) as well as 16 % growth
in sales (Hermes 2024)

3.2.4 Technological factor

With its heavy investment in digital platforms, Hermes has been able to enhance
its customer experience. With the booming growth in online revenue that has
helped the brand strengthen as well as to integrate a seamless omnichannel
system (Hermes 2024), merging in-store and online experiences through tools
such as click-and-collect. This has not only improved customer relationship with
the brand but also reinforced the brand’s exclusivity and service quality, ensuring
consistency all through.

To strengthen and create warm rapport for high value clients, Hermes has initiated
advanced CRM and analytic platforms (Hermes ,2023). This approach has enabled
strengthening the relationship with its top clientele thus helping in building the
brand’s prestige. Some of the initiatives include reservation systems, waitlists and
bespoke offers that are backed up by strong data governance and skilled IT staff
(Science Direct 2024). This allows Hermès to deliver tailored experiences while
safeguarding client information, translating into higher customer loyalty and
sustained long-term lucrativeness.

3.2.5 Legal factors

Hermes faced allegations under U.S antithrust law in 2024 for limiting access to its
iconic Birkin Bag (Fashion network 2024). Their consumers claimed that before
purchase of the Birkin Bag, they were required to buy other items such as scarves
and jewelry (Business of Fashion, 2025). This led to the company being sued for
violation of antitrust regulations as well as brand reputation, particularly among high-
net-worth clients who value transparency and fairness that affected its sales (Euro
news 2024).
Marson Rothschild created and sold NFTs depicting Birkin Bag without authorization
that led to a lawsuit filed against him by Hermes (News 24 2022). A decree was
given in favor of Hermes affirming its rights over digital intellectual property and
strengthening brand protection in the virtual space (Euronews, 2023). This may have
led to increased general and administrative expenses rise from €3,169 million in
2023
to €3,569 million in 2024 (Hermes, 2024) due to ongoing litigation and brand
protection initiatives.

3.2.6 Environmental factors

Hermes has initiated development of eco-design strategies that will fight for climate
change as well as preserve biodiversity at the forefront (Hermes 2024). They will
also encourage the sparing use of resources and waste management (Hermes
2024). Measures have been taken to minimize use of hazardous resources wherever
possible (Knowledge Hub 2024). Procedures for controlling chemical products as
well as reducing chemical risks have been put in place (Hermes 2024). Most of its
sites are subject to European regulations which are quite stern (Hermes ,2024).
Additionally, measures have been taken to minimize use of hazardous resources
wherever possible. Procedures for controlling chemical products as well as reducing
chemical risks have been put in place. Most of its sites are subject to European
regulations which are quite stern, (Hermes 2024). This has enabled Hermes to
strengthen its position in luxury brand by aligning with growing consumer demand for
ethical, environmentally conscious brands.
These reinforced initiatives may build Hermes a brand name, placing their name as a
leader in responsible luxury. Keeping in mind that environmental factors are a key
factor, Hermès has enhanced consumer trust and long-term brand equity by
improving resource efficiency and waste management.
 FINANCIAL ANALYSIS

3.3 PROFITABILITY RATIOS

3.3.1 Gross profit margin

GPM
73
72
71
70
69
68
67
66
65
64
2022 2023 2024

Series1 HERMES LVMMH

While both Hermes & LVMH are global giants in the luxury sector, Hermes has
consistently maintained a significant superior gross profit margin than LVMH and its
peers in the industry, (Adrienne ,2025). This is not an indicator of LVMH's weakness
but rather illustrates how business models/strategies can affect the financials of an
entity. Hermès's employs a unique, ultra-exclusive business model centered on
unparalleled pricing power, scarcity, in-house craftsmanship and product desirability,
while LVMH adopts a diversified "portfolio of brands" strategy. Hermès sells a
narrower set of ultra-priced, craft-intensive products through tightly controlled
channels which allows preservation of profit margins. On the other hand, LVMH has
a diverse portfolio of products with varying margins (LVMH,2024) and adopts a wide
distribution model that leads to dilution of margins.
The improvement in the GP margins for the two companies in 2023 was driven by
strategic price increases that far exceeded the rate of inflation and cost growth. This
was coupled by positive FX hedges ([Link], 2024) due to depreciation of the
currencies (LVMH,2023). In 2024 both companies experienced a drop in GP margins
which resulted by softer luxury demand (Investing, 2024) and mix/currency effects
(Guru Focus, 2024). However, Hermès’ craftsmanship-limited supply and pricing
power keep it margins ahead, (Hermes 2024)

3.3.2 Operating profit margin

OPM
45
40
35
30
25
20
15
10
5
0
2022 2023 2024

HERMES LVMH

The three-year trend in operating profit is driven by the trend & trickling effect of
gross profit margin as well as the business models adopted by the Titans. Hermes
has mastered the art of margins leveraging its unique desirability to achieve ever-
higher levels of profitability, (SPH Media ,2025). On the other hand, LVMH has
mastered the art of scale and diversification utilizing its wide portfolio to generate
massive revenues, albeit with lower consolidated margins, (Zheng, 2024).
In FY2022 Hermes not only achieved an impressive operating margin of 40.5% but
also surpassed the 40% mark for the first time, (Brand vision,2024). This was majorly
driven by growth in all business lines as well as geographical areas with sterling
performance in Leather and Saddlery division (Hermès, 2022).
In 2023 Hermes managed not only to maintain its operating profit margin but
expanded it by 160 basis points. This was due to positive impact of foreign exchange
hedges and translation costs as well as efficient cost management, (Hermes 2023).
LVMH margin remained strong but maintained a flat curve compared to FY2022 due
to exposure of its diversified structure to broader economic slowdown and inventory
write-downs in some markets and product categories, (LVMH,2023) thus inhibiting
the margins expansion.
The slight decrease of Hermes OPM margin in 2024 was due to increased
production capacity due to launching of new leather workshops in France and
expansion of retail network in Asia, U.S. This contributed to higher fixed costs
leading to a decrease in OPM (Hermès, 2024). Hermès has increased brand
desirability and pricing power, enabling consistent price adjustments without volume
loss, (Amit,2023). Despite this, Hermes maintained an OPM of 40.53% in 2024
portraying its exceptional pricing power and operational efficiency (Fashion BI 2025)
as well as 16 % growth in sales (Hermes international 2024).This is outstanding
performance in the luxury field highlighted its efficiency, (Fashion BI, 2025) and
operational resilience (Hermès Paris, 2024) despite the currency pressure and
unstable global demand (Fashion BI, 2025).

3.3.3 ROCE
 ROCE
35

30

25

20

15

10

0
2022 2023 2024

Series1 HERMES LVMH

The analysis of ROCE for both giants reveals that they are exceptional value
creators with notable disparities caused by the different business models adopted by
the companies. Hermes operates a light capital model driven by strong brand &
craftsmanship, not massive factories hence the superior returns, (SPH Media,2025).
On the other hand, LVMH operates a capital-intensive model due to its diversified
portfolio, large scale operations and a global retail empire, (Amit,2023).
In FY2022 Hermes achieved a staggering ROCE from an EBIT of €4.1 billion and a
capital employed base of just €9.65 billion (Hermès, 2022) affirming its asset-light,
high-margin model. This also indicates its incredible efficiency & capability in utilizing
minimal capital to generate enormous revenues as well as profits, (Solca, 2023). In
FY 2023 Hermes expanded its ROCE due to a 21% increase in EBIT while capital
employed grew at a comparative lower rate, (Hermes,2023).
Stringent pricing strategy and prohibition of discounts are additional enablers of
Herthe employed capital of the impressive ROCE, (Invest seekers 2025). In 2024
Hermes OPM decreased by 1.54% due to increased production capacity due to
launching of new leather workshops in France and expansion of retail network in
Asia, U.S. This contributed to higher fixed costs and increase in capital employed
leading to a decrease in ROCE (Hermes, 2024). LVMH ROCE consistently lagged
over the three-year period. This is not an automatic indicator of inefficiency, but it’s
occasioned by the need for a larger capital employed base to support its diversified
operations, (LVMH,2022)
ROCE is usually driven by its two main components, i.e. the operating profit margin
and the net interest component. Hermes impressive ROCE is driven by both its
strong operating profit margins as well as its high net asset turnover (Zheng, 2024).
This is an indication of its excellent capability to utilize the net assets to generate
profits. Hermes outstanding performance captivates the eyes of investors as it
portrays strong profitability especially with unstable global demands and currency
fluctuations in the luxury industry as compared to LVMH.

3.4 Liquidity ratios

3.4.1 Current Ratio

CURRENT RATIO
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2022 2023 2024

HERMES LVMH

The disparities between the two Luxury giants continue to manifest even in liquidity
ratios majorly due to different working capital management practices adopted by the
two companies which are majorly driven by their business models. Hermes
consistently reported a superior ratio indicating a more conservative and robust short
term financial structure largely due to its big cash reserves and minimal reliance on
short term debt in financing working capital,(Hermes,2023) (Gurufocus,2004 –
2025).The conglomerate nature of LVMH affects the way in which the group
manages its working capital as it maintains a healthy current ratio but comparatively
lower due to its higher current liabilities from continuous acquisitions and operational
scale,(Finbox,2025)
In FY 2022 Hermes strong current ratio was majorly driven by the massive cash
balances of €9.1 billion compared to current liabilities of €3.9 billion,(Hermes,
2022).On the other hand LVMH had a comparatively higher current liabilities of €45.9
billion due to its massive operational scale compared to current assets of (€60.2
billion), (Fusion Media,2007 – 2025).This is an indication of efficient resource
management to support its large scale operations without maintaining excessive idle
cash,(LVMH,2022)(Ychart,2025)
Hermes’ current ratio remained stable in FY 2023 & 2024 reflecting its consistent
financial discipline as it continued to generate massive free cashflows that boosted
its short-term liquidity. LVMHH also managed a relatively stable ratio over the three-
year period demonstrating a managed and targeted liquidity policy (LVMH, 2024

3.4.2 QUICK RATIO

QUICK RATIO
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2022 2023 2024

Hermes LVMMH

Hermes has consistently reported a stronger quicker ratio affirming its robust short
term financial liquidity position, (Finbox,2025). With consistent quick ratio of above 3,
Hermes demonstrates its exceptional capability to cover its current obligations with
its liquid current assets, (Hermes,2023). It indicates the conservative and robust
strategy of Hermes in working capital management as it maintains massive cash
balances, (Gurufocus,2004 – 2025)
LVMH quick ratio has remained less than 1 over the three-year period indicating that
the company’s liquid assets are not adequate in meeting its current liabilities, (Stock
analysis, 2025). This trend implies that LVMH majorly relies with inventory sales or
other means to meet its short-term obligations, (Gurufocus,2004 – 2025).

In line with its Business model Hermes operates a fortress balance sheet
characterized by ultrahigh liquidity ratios, minimal liquidity risk and a towering
financial flexibility that enables the group to navigate through external downturns with
ease,(Fusion Media,2007 – 2025).On the other hand LVMH operates a more
efficient and leveraged model which aligns with its conglomerate business model. Its
comparative lower quick ratio is synonymous with large conglomerates as they
actively seek to manage the working capital and utilize strong cashflows and
borrowing capacity to fund their wide operations rather than holding idle cash,
(Fusion Media,2007 – 2025) (Ycharts,2025).
3.5 Gearing ratio

3.5.1 Debt to equity ratio

GEARING RATIO
25.00

20.00

15.00

10.00

5.00

0.00
2022 2023 2024

HERMES LVMH

Once more the two giants adopt totally contrasting strategies/ approaches to debt
management. Hermes maintains a virtually debt free balance sheet with Lease
liability being its major liability, which indicates extreme financial conservatism,
(Adrienne,2025). On the other hand, LVMH incurs a moderate and strategic level of
debt utilizing its cashflows to finance its wide operations, growth and acquisitions.
Both approaches are successful with LVMH gearing levels being moderate,
indicating some levels of efficiency rather than being risky, (GlobeNewswire,2024)
(Adrienne,2025)2.
In FY 2022 Hermes had a total debt of €299 million as compared to huge equity
base of €9.95 billion (Hermès, 2022) indicating Hermes conservative policy of self-
funding its operations maintaining high levels of financial independence. On the
other hand, LVMH ratio shows an intentional and moderate use of leverage to
finance its vast operations, acquisition strategy and growth (Zheng, 2024).
In FY 2023 & 2024 Hermes already negligible gearing ratio improved consistently on
the backdrop of strong profit generation that increased equity as debt levels
remained minimal, (Bloomberg, 2023).
One of the reasons for Hermes’ remarkable performance as compared to LVMH is
due to its near debt free balance sheet that depicts its ability to manage capital as
well as long-term brand stewardship (Hermes, 2024). In addition, its financial
stability, excellent liquidity strength and resilience in the industry justifies its amazing
gearing ability. Its financial statement clearly illustrates its minimal reliance on debt
protecting itself from additional finance costs unlike LVMH that depicts the opposite
of this therefore making Hermes have a better debt to equity ratio.
3.6 Efficiency Ratios

3.6.1 Receivables days

RECEIVABLES DAYS

25

20

15

10

0
2022 2023 2024

HERMES LVMH

In 2023-2024, revenue growth was proportion to increase in trade receivables. This

helped maintain receivable days at equilibrium over the period. Hermes consistent
credit management and low default risk further reinforce this stability.
In 2024 annual report showed changes in receivables and working capital remained
modest, indicating stable payment terms with customers. All these factors explained
the consistency in Hermes receivable days throughout the period underscoring its
efficient credit control and cash collection processes (Hermes 2024).
Hermes has portrayed a quicker collection period as compared to LVMH. The fewer
days the more the cash flow and financially stable the company is. Hermes has
exceptional cashflow, allowing it to convert revenue into cash much faster. On the
other hand, LVMH has longer days compared to Hermes but is still within the
threshold of 30 days, signifying that longer periods indicate more capital tied up in
receivables. In conclusion Hermes has quicker receivables turnover and strong
liquidity as compared to LVMH.
 CONCLUSION
Hermes has consistently upheld its leading position in the global luxury market due
to its resilience amid myriads of challenges it has faced. The giant has collectively
maintained its brand equity, financial resilience, unparallel craftsmanship as well as a
strong financial position. Hermes has utilized its notable strengths in expanding in
emerging markets as well as in the digital space. Counterfeits and limited production
capacity remain a thorn to the management of Hermes. While in the short run the
Limited capacity has enabled in creation of scarcity which drives the prices upward,
in the long term this may work against Hermes. It will be prudent for the
management of Hermes to consider diversifying the products to avoid overreliance of
leather products that are prone to supply chain vulnerabilities.
Despite the high tax levy, the Government supported Hermes by encouraging
domestic shopping of luxury brand thus enhancing profitability. In addition, the social
and technological factors have favored Hermes by minimizing its presence online to
allow customers to have a one-on-one experience at the shop but also attract their
customers to their modified advertising systems that captivate the consumers. Due
to counterfeit issues, they are facing as a brand, legal action had to be taken to
mitigate the risk of consumers purchasing fraudulent items. Hermes cares about its
environment and has invested in eco-design activities that will fight climate change
as well as protect biodiversity.
Hermes has reported an exceptional financial performance/position that has not
been reported by any other entity in the industry. Its comparative financials are
outstanding in all respects, i.e., Profitability, liquidity, efficiency and gearing. The
financials are majorly driven by the unique business models that are adopted by
both giants in the luxury sector. Hermes hyper- exclusive & scarcity model has
enabled it to achieve impressive profits margins as well as shaping both its short
term and long-term liquidity policies. The diversified model adopted by LVMH has
also driven its margins as well as shaping its liquidity and gearing levels.

Hermes ability to utilize its strengths and aggressive pursuit of opportunities availed
by the external environment have enabled it to post excellent and exceptional
performance over the three-year period. Its future success and maintenance of the
position will depend on the management ability to manage the weaknesses as well
as mitigating the exposure to threats.