Even a market powerhouse like Hermes International SA can see its stock expectations lowered. Last week, RBC Capital Markets downgraded the luxury giant's stock rating from Outperform to "Sector Perform," simultaneously trimming its price target from 1,900 euros to 1,700 euros. The institution's analysis suggests that the company's growth performance is narrowing its "growth differential" relative to the broader luxury sector.

At the end of July, Hermes published a seemingly outstanding half-year report. However, after nearly a month of digesting the results, the market has arrived at a different verdict. A focal point of the report was the sluggish growth in the Chinese market. During the post-earnings conference call, Axel Dumas, Executive Chairman of Hermes, introduced his unique "pork price theory" to explain the situation. In simple terms, he posited that pork prices can serve as a barometer for consumer sentiment. Currently, pork prices are very low. He suggested that if they begin to rebound, it might signal that consumers are again willing to celebrate and spend, which could lead to a return to high growth for Hermes in the Chinese market.

However, the market is not buying into Dumas's "pork theory." Analysts believe that the "growth gap" between Hermes, once considered the world's most cycle-resistant luxury brand, and other luxury companies is narrowing. There is growing concern that the "perfect company" valuation previously afforded to Hermes may have already surpassed the growth it can realistically achieve in the future. A fitting commentary from foreign media suggests that Chinese middle-class consumers are not simply "trading down" but shifting to the top of what they can afford, rather than the bottom of expensive categories. Perhaps Hermes has not lost Chinese consumers, but those consumers are losing the impulse that "it must be Hermès."

Observing pork prices? At the end of last month, Hermes reported results for the first half of 2026. Second-quarter revenue grew 6.7% at constant exchange rates to 4.09 billion euros, which doesn't look bad. First-half revenue reached approximately 8.2 billion euros, a 6% increase year-on-year, with recurring operating margin still around a robust 41%. The financials themselves were not an issue, yet the stock price plunged about 11% on July 29th, marking a rare significant drop in over a decade. Market value evaporated by approximately 19.7 billion euros in a single day. Data from Euronext Paris shows that by August 26th, Hermes shares had fallen roughly 27% year-to-date, retreating from their early-year highs to around 1,550 euros.

This isn't because Hermes suddenly cannot sell its Birkin bags, but rather because the market no longer believes it can remain immune to the Chinese consumption cycle. In the second quarter, sales in Asia-Pacific (excluding Japan) grew only 2.5%. In comparison, Americas sales grew about 13.7%, and Japan saw growth exceeding 12%. It's clear that Hermes' growth is increasingly reliant on markets like the US and Japan, while China has not picked up the baton. Explaining this performance, Axel Dumas attributed it to an excellent performance by the Chinese team, with the Greater China region maintaining growth, though not yet returning to previous levels, and without visible improvement in demand. In the call, he summarized his view on the Chinese market with three key phrases: stabilizing, not yet rebounding, and unclear.

His assessment indicators, however, have caused considerable confusion. He focuses on three main metrics: the property market, the stock market, and pork prices. He is currently watching pork prices to gauge Chinese consumer confidence. "Pork is an important indicator of people's willingness to celebrate, spend time together, and host banquets, but pork prices are currently very low." The CEO of a top global luxury brand is now referencing the trajectory of Chinese pork prices to judge when the "consumer sentiment" of Chinese shoppers will truly return, in order to predict when they might start buying Hermes again. Many online commenters have responded to this famous "pork theory" by suggesting Dumas understands neither China's pork market nor the current dietary habits of Chinese consumers.

The capital market is repricing the "Hermes myth." Looking only at operational data, Hermes remains a top performer in the luxury industry. Full-year 2025 revenue exceeded 16 billion euros, maintaining strong growth and profitability. First-half 2025 revenue reached 8.163 billion euros, up 6.1% at constant exchange rates, with recurring operating margin stable at 41%. Even in the first quarter of 2026, there was 6% constant currency growth, with Asia-Pacific (ex-Japan) growing 2% and Greater China still seeing a "slight increase." Two weeks after Hermes' half-year report, Deutsche Bank lowered price targets for European luxury stocks, including Hermes, which fell about 2.5% that day. Subsequently, RBC Capital Markets downgraded Hermes from Outperform to "Sector Perform." Recently, the share price hovered around 1,550 euros, with the market's average 12-month price target around 1,870 euros. RBC's decision to cut its price target from 1,900 euros to 1,700 euros seems perfectly logical. The firm's analysis is based on Hermes' growth advantage having been about 8% in 2025, but expects this gap to narrow to roughly 2% relative to the luxury industry average between 2027 and 2030. This implies Hermes will still grow faster than its peers, but will no longer be "far ahead."

The Financial Times noted that Hermes achieved an 18% compound annual sales growth rate from 2019 to 2024. Citigroup analyst Thomas Chauvet believes this level of growth is "difficult to sustain long-term," and growth is now gradually normalizing to high single digits. Concurrently, as growth slows, investors are re-evaluating Hermes' high valuation relative to its peers. Therefore, the recent downgrades by some investment institutions are seen not as a crisis for Hermes itself, but rather a "expectation crisis" for the brand.

Why is the market suddenly dissatisfied with a company that still grows 6% and has profit margins above 40%? RBC Capital Markets highlighted a key issue: Hermes is becoming increasingly dependent on leather goods. Founded in Paris in 1837, Hermes is a benchmark in the global luxury industry, with its own marketing and sales strategy, the core of which is scarcity. The strategy isn't simply about selling more, but ensuring every item generates high profit, from a classic leather bag to a small keychain. This approach skews its client base towards ultra-high-net-worth individuals, making it seem the most "cycle-resistant" during a luxury downturn. However, according to RBC's analysis, "if volumes don't accelerate significantly, from 2027 onwards, revenue growth for Hermes' leather goods business could be around 9-10%. If growth in the leather goods business slows, it will become increasingly difficult for Hermes to maintain its past excess growth." The firm's data shows that from 2025 to 2030, leather goods are expected to contribute 63% of Hermes' group revenue growth, compared to just 40% in the previous five years. Hermes certainly has silk scarves, perfumes, and cosmetics, but its true brand asset and profit engine is leather goods. And leather goods are precisely one of the categories Chinese consumers are most likely to delay purchasing right now.

Meanwhile, with the rise of numerous Chinese affordable luxury brands, "accessible luxury" has become a new trend, working alongside the "guochao" (national trend) movement to compete for market share. A luxury analysis report from Bernstein highlights the rise of local Chinese bag and leather brands. For instance, Songmont has seen average annual sales growth of 59% from 2021 to 2025, compared to Coach's 13%. The report mentions five Chinese local leather bag brands that achieved an average annual compound sales growth rate of 51% between 2021 and 2025. During this period, the sales volume of these five brands grew an average of about 37% annually, while their prices only rose by about 10%. Unlike many European luxury brands, these companies handle design, raw materials, and production within China, relying on the country's mature leather goods supply chain. This offers greater flexibility in terms of both development cycles and shipping costs. Many of these emerging brands also focus on digital marketing to reach consumers directly, avoiding the costs of a large international retail network. However, Bernstein's conclusion is insightful: the pressure from these local Chinese brands is primarily on other "accessible luxury" brands, such as America's Coach and France's Longchamp, because they are in the same pricing bracket. Traditional luxury giants, from Hermes to Dior and LV, have not been significantly impacted. Yet, the question remains: when Chinese consumers begin to rethink "what kind of luxury is worth my money," can Hermes continue to sustain its past 18% growth rate?