Hermes International SCA
PAR:RMS
Earnings Call Analysis
Q2-2023 Analysis
Hermes International SCA
The company's exemplary financial performance was highlighted by exceptional growth across several key segments, most notably in Saddlery and Leather bags which grew by 21% due to sustained demand. Fashion continued to shine with Clothing and Accessories growing by an impressive 35%, driven by the popularity of ready-to-wear collections and accessories including fashion and shoes. Other segments like Silk and Textiles, Perfume and Beauty, and Watches also saw solid growth of 22%, 10%, and 24%, respectively. This diverse growth across segments showcases the company's strong brand appeal and product desirability on a global scale.
The company strategically invested €250 million in the first half of the year, with a focus on renovating and expanding the distribution network, primarily in key markets such as China, the United States, and Europe. Additionally, the company allocated significant resources to boosting production capacity, notably in new leather production sites and textile printing facilities. Investments in digital systems and real estate were also made to support ongoing business line development. Looking forward, the company plans to accelerate operational investments, projecting a total annual spend of approximately €900 million, nearly doubling the previous year's capital expenditure.
The company pursues 2022 with confidence, driven by a unique corporate model that emphasizes values such as independence, enterprise, artisanal craftsmanship, and creativity. Looking to the second half of the year, the company intends to accelerate job creation and bolster investment across all of its métiers, signalling continuous commitment to expansion and improvement. Store openings in Topanga, Chengdu, as well as store enlargements in Bordeaux and Chicago demonstrate a strategic approach to retail presence. Additionally, the company hinted at the launch of a new chapter in Hermès Beauty focused on eyes, and the Corporate Foundation will persist in its commitment to education and fostering craftsmanship among the youth.
The company's cash flow increased by 36% year-on-year to €2.6 billion, reflecting its strong earnings performance. Continued sales growth led to a rise in working capital requirements, mainly driven by increased inventories and raw materials to meet customer demand. After accounting for operational expenses and lease liabilities, the adjusted available cash flow stood at €1.7 billion. Remarkably, the company's restated net cash position climbed by €100 million in the half-year period, reaching €9.8 billion at the end of June.
For the full year, the company anticipates a combined volume growth of around 7-8% and a price effect of 7%, totaling an expected growth of about 15%. The company also benefited from the positive effects of currency hedging in the first half, with gains from option cover hedging contributing around €140 million, a one-off that will not recur in the second half. Communications spending is projected to reach €600 million, representing a significant increase from €260 million spent in the first half. As the company continues to advance, it is ramping up hiring with plans to recruit over 1,000 new employees in the second half. A significant expense on the horizon is the free share plan granted on June 15, expected to impact the second half to the tune of €600 million.
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[Interpreted] Ladies and gentlemen, welcome to the presentation of the 2023 First half Results of Hermès International. I'd like to give the floor now to Mr. Axel Dumas, CEO of Hermès International; and Mr. Eric du Halgouët, the Chief Financial Officer, You have the floor, gentlemen.
[Interpreted] Good morning, everybody. I'd like to thank you for joining us for the publication of the first half results of 2023. First and foremost, in a family business made up of personal encounters, I would like to have a thought for Jane Birkin, a dear friend, a wonderful accomplice of the house for over 40 years. Her innate elegance is that of an artist who was committed, open-minded curious about the world and those around her. Together, we have woven a bond of friendship on shared sensitivity. Her chosen affinity is essential to the history of Hermès. Our thoughts go out to her daughters, grandchildren and her loved ones.
I now come to our presentation. After a historical 2022, I'm happy to present an excellent first half with very dynamic activity. Everywhere in the world, our longstanding and new plants have been there to receive our collections very well. I'd like to thank our teams for their commitment and dynamism. These results reflect the desirability of our creations in all the business lines, the exceptional quality of raw materials, exceptional know-how, always enriched, preserved and transmitted as well as the creative abundance of our collections, but above all, the highly integrated artisanal corporate model, putting the human person at the center.
The group has pursued in the first half of the year the acceleration of its strategic investments in production capacity, the development of its network and securing of its supply chain. To this effect, three new leather workshops have been inaugurated in three French regions. We have reinforced our teams in all the métiers with the number of employees that have doubled in 10 years, two-thirds of which are in France where we manufacture, may I remind you, 80% of our objects in over 50 production sites.
Let us now come to the highlights. Inspired by the theme of 2023, Astonishment, the 16 métiers gave free rein to their creativity. Let us mention a few examples of the first half of the year. In the leather handbag collection, let's note the success of models such as In-The-Loop, Della Cavalleria, Hacados men's bag. We continue to expand value rare know-how, such as hand-painted wickerwork or leather marquetry.
The attachment to clothing as an object is seen in the fashion shows of men and women's ready-to-wear that have been very well received during the Parisian Fashion Week. I would also like to mention great success around Jewelry, the new precious line, Chaîne d''ancre, which was presented in July, in the Faubourg-Saint-Honoré store of watches, the H08 watch and its new cronograph version in carbon fiber.
Let us also mention beautiful welcome of the perfume, Un Jardin à Cythère, the seventh creation in the Jardin line. I'd also like to mention the home collection, which have encountered great success in the last edition of the Milan Fair.
Investments in our production capacity accompany this positive momentum. This half – first half of the year, we've inaugurated three leather workshops: Louviers in the Normandy, Sormonne Ardennes in May and a new extension in Saint-Junien, the Haute-Vienne. We've announced the opening of a new leather workshop in Charleville-Mézières, which will complete this grouping by 2027. Four leather workshops, therefore, are in the project and which will see the light of day in the coming years.
Investments in our production capacity has strengthened at J3L, a company specialized in metal fixtures and the métiers of fashion in Italy, shoes and perfumes in France at Le Vaudreuil, tableware and watches in [indiscernible] in Switzerland. Proud to contribute to the expansion of areas of excellence, Hermès has longstanding relations of excellence with its suppliers and partners for loyalty and high demand in quality, maintaining unique quality of Hermès objects, training know-how, dedicated workshops.
Coming now to distribution network. We pursue investment in the multi-local retail networks, with the 2023 over 20 projects for enlargement and renovations. For the first half of the year, I would like to mention the opening of the Naples store in the USA. in Aspen that you see here in the photograph and several enlargements and renovations of stores such as Hamburg for Europe; Peninsula, which in 1997 was our first address in Beijing; and Abu Dhabi in the Middle East.
E-commerce, which represents also a door to enter into the world of Hermès, the new customers confirms it's a dynamic movement and it's growing sales in all countries. The omnichannel complementarity allows us to close to our customers and open the doors to new customers.
First half of 2023 was the opportunity for several events, such as the kiosk of Le Monde d'Hermès, Hermès Parade or Hermès in the Making in Lille and finally petit h which had a stopover in Osaka in Japan.
Now let's talk about our company's CSR policy, which is very much part of our DNA. In the first half of '23, we continue our commitments to sustainable and responsible growth via people, climate strategy, territorial anchoring and responsible actions. We continue to demonstrate our attachment to territories, where we establish ourselves and enhancement of local know-how. And we continue commitment as a responsible employer.
This year, the group is stepping up job creation with over 900 people hired in the first half, over 500 of whom in France. The trend will continue pace in the second half in all of our business lines. In addition to the onetime bonus at the beginning of the year, we also rolled out a sixth free share plan, making it possible for all employees worldwide to become Hermès shareholders.
We're attached to the excellence of know-how and its transmission. Therefore, we're continuing the rollout of various in-house training arrangements. The École Hermès des Savoir-Faire had a new graduating class and has also launched a new training section for cutters.
Lastly, we have a focus on inclusion and diversity. We now have 6.85% of our employees who are living with a disability. Throughout the first half of the year, Hermès continued its specific actions to counter climate change. Our real estate specifications are responsible developed by this house, established for each real estate project. Very demanding targets in terms of carbon footprint, quality of air, local sourcing, biodiversity to continue making things of beauty and places of beauty.
One example, the two most recent leather sites are the first two industrial buildings in France to be E4C2 certified. It's a label that certifies energy – environmental performance and energy performance as well as carbon emission performance. This helps us reach our target of dividing by two our carbon output by 2030 compared to 2018.
Our actions to counter climate change also hinge on energy conservation such as containing our energy use. We divided by two our energy intensity over a 10-year period. Our electricity supply is 100% renewable in France. Our commitments in corporate, social and environmental responsibility continue with the strong local anchoring, our vertical integration and priority we give to local suppliers.
Let's now come to the activity. After Q1 at plus 23% at constant rates, the growth of the activity was pursued in the second quarter at plus 28% at constant rates. At the end of June, the revenue is up to €6.7 billion, up by 25% at constant exchange rates and plus 22% at current exchange rates.
All the regions have flagged beautiful progression above or equal to 20% and all the métiers have confirmed a solid dynamism. Growth was sustained in the stores of the group as well as wholesale, thanks namely to the rebound of travel retail.
Let us now have a look at the activity by geographical area. In the first half of 2023, all the regions have flagged solid progression higher than 20%: France, plus 24%, and Europe excluding France, plus 22% and have pursued their strong growth, thanks to the loyalty of the local customers and the dynamism of tourism flows. Japan with 26% has had remarkable growth. Asia, excluding Japan, plus 28% after a successful Chinese New Year pursuing its strong dynamism in Greater China and in all of the region, namely in Singapore, in Thailand, Australia and Korea.
Second quarter benefited from a favorable comparison basis compared to last year as a result of the health measures in China in April and May 2022. America, plus 20%, pursued its beautiful progression in the second quarter. The geographical distribution remains stable from one year to the next.
Let's now have a look at the activity per métier, per business line. At the end of June 2023, all the métiers have confirmed that dynamic movements underlining the great attractiveness of the house of Hermès. So Saddlery and Leather bags, 21%, exceptional growth resulting from sustained demand. Clothes and accessories plus 35% pursues its beautiful dynamic movement carried by the success of the ready-to-wear collections as well as those of accessories, fashion and shoes.
So Silk and Textiles, plus 22%, solid growth on exceptional materials and extension of production capacity. Perfume and Beauty, plus 10%, pursuing their development and benefiting from the latest launches. Watches, plus 24%, confirms its excellent performance around creativity, style and know-how in watchmaking, which is exceptional for complication models as well as the classic models of the house.
Finally, other métiers of Hermès, plus 32%, pursued the strong growth highlighting the singularity and the creative force of Hermès. The evolution of the distribution of the métiers reflects the progression of clothes and accessories and other métiers of Hermès. Leather handbag pursued its growth online – in line rather with the objectives.
I'd like to now give the floor to Eric du Halgouët, the CFO, who will present the results to you.
[Interpreted] Good morning to you one and all. It's my pleasure to present excellent results to you. At constant rates, growth in revenue is 25%. And as in 2022, this is especially virtuous with a price effect of approximately 7%. After taking into account the value loss of the yen, the Chinese yuan mainly growth in sales is 22% at current exchange rates.
Gross margin rate, up 1.2 points compared to the first half of 2022. This improvement is due to the positive impact of currency hedges, a leverage effect on our fixed production costs as well as the continuation of the excellent sell-through rates of our collections.
Furthermore, sales prices mentioned previously made it possible for us to cover changes in our cost prices so far. Communication spending, reaching €260 million, representing around 4% of sales. Communication spend is up around 30%. To remind you, several events, particularly those in Greater China, have been canceled in the first half of 2022.
For the full year, communication spending should reach approximately €600 million. Projects will be stepped up in the second half. Sales and administration expenses, €1.2 billion, growing slightly faster than growth in revenue. Precisely, the group is adding to its sales staff and support function. It's also got SaaS mode IT projects which are now booked as expenses. This strengthening will continue in the second half.
Other income and expenses, €403 million. This remained stable compared to the first half of 2022. To remind you, this means mainly amortizations of intangible and tangible assets as well as amortizations of usage rights. Furthermore, these contain the expense related to free shares, which will become part of the plan in the second half. This is the plan that was granted to employees in June.
Recurring operating income for the half year is €2.9 billion, up 28% compared to the same period of 2022. Recurring operating profitability reaching 44% of sales, up 2 points compared to the first half of 2022.
Financial income is an income of €75 million, which includes the cost of Forex hedging, lease liabilities as well as interest earned on liquidities, that's €140 million in a half yearly period, which is in conjunction with increased interest rates. The tax rate for the first half, 27.5%. This corresponds to the rate we're expecting for the full year 2023.
Income from associates, €43 million. This growth is a reflection of the momentum of our activities in the Middle East. These are equity affiliates. Net income group share goes beyond €2.2 billion, which is up 36% compared to the first half of 2022. Therefore, net profitability reaches a record level, 33% of sales, up 3 points compared to the first half of 2022.
On this chart, we can see the strong rebound in revenue and net income after 2020, which had seen the health crisis. Precisely, between 2019 and 2023, revenue has been multiplied by 2 and net earnings by 3. Over a 10-year period, annual average growth of both revenue and net income, respectively, 14% and 19%.
The group invested €250 million in the first half of 2023 versus €190 million last year. €90 million were spent on renovation and extension of the distribution network, specifically in China, the United States and Europe. €80 million was spent on boosting production capacity, particularly in projects for new leather production sites as well as our textile printing facilities in Lyon.
Lastly, €80 million invested in digital information systems and real estate to support the business lines development. Operational investments will speed up in the second half and for the full year should reach around €900 million versus €500 million in 2022.
Our cash flow, which is €2.6 billion, up 36% year-on-year at a pace which is similar to the pace of earnings increases. Change in working capital requirements, this is mainly due to increases in inventory and raw materials, which are due to the strong growth in sales.
After taking into account operational expenditure as well as the reimbursement of lease liabilities available – adjusted available cash flow is €1.7 billion. Hermès International has enacted no share buybacks, except for those within the confines of liquidity contract. In the first half, €1.4 billion of dividends were paid. The line other changes mainly means the value decline of currencies versus the euro on our cash flow. The restated net cash position is up €100 million for the half year period reaching €9.8 billion at the end of June.
Cash represents 50% of our total assets. Shareholders' equity, €13 billion, represents 70% of our liabilities. After this first half of the year, the group has consolidated its strong financial structure, enabling it to preserve its independence and continue with its long-term strategy.
I'd like to thank you for your attention and give the floor to Axel, who will talk to you about the outlook.
[Interpreted] Thank you, Eric. I now come to the outlook of the group that will be unchanged. For 2022, the group pursues the year with confidence, with strong – with its unique corporate model, particularly solid deploying around it values, independence, spirit of enterprise, artisanal and creativity.
We pursue the dynamism carried by the enthusiasm of our teams all over the world. In the second half, the other house will accelerate the creation of jobs and strengthening of investments in all the métiers. We will continue the opening in Topanga and L.A. in the USA Chengdu in China and enlargement of stores such as Bordeaux in France or Chicago in the United States of America.
Second half of the year will also be marked by the launch of the fifth chapter dedicated to Hermès Beauty around eyes. The Hermès Corporate Foundation will continue its commitment around education, awareness raising of the young to craftsmanship and there was challenges of diversity.
In conclusion, I'd like to thank our teams and our clients everywhere in the world. I'd like to thank you for your attention, and now we are available with Eric to respond to your questions.
[Operator Instructions] First question comes from Kepler Chevreux. Please go ahead.
[Interpreted] Good morning. Thank you for taking my questions. Two questions. The first is on the organic growth of the leather and saddlery division, which in first half of the year is beyond your annual guidance. And if you confirm this annual guidance, this represents about 10% organic growth for the second half of the year. So almost no growth in volume, the growth of 7% of the prices of the division. So can the annual guidance seem a bit cautious taking into account elements for the second half of the year?
Secondly, your EBIT margin, if you look at the annual consensus, it gives a contraction by 90 basis points for the second half of the year, which may seem a bit cautious, all the more since the contribution of the foundation last year had an one-off effect of 100 basis points. Are there any elements that have to be taken into account here to modelize your EBIT margin for the second half of the year?
[Interpreted] First of all, on your first question, changes in leather. The 21% growth may be extrapolated for the full year. For two reasons, production was disturbed in the first quarter of '22 due to COVID, particularly in January, February. The second reason is that leather, as the other business lines benefit from the base of comparison with China. Remember, April and May had been very disturbed last year. This year, production was excellent at our sites during the first half.
So now if we look forward toward the full year, we're still seeing capacity growth, so volume growth of around 7% or 8% and the COVID catch-up effect. Then there's the price effect. We already alluded to this around 7%. So that's around 15% all in all for the full year.
Regarding the EBIT margin, we have to remember, in the first half, we benefited from positive effects of currency hedging. And aside from that, we had some gains from our option cover hedging around €140 million. That's a one-off nonrecurring in the second half.
We mentioned speeding up in capital expenditure. We're expecting to spend €900 million for the full year, whereas it's been €250 million in the first half. We also are expecting, as we said, €600 million in communication spending compared to the first half at €250 million.
Hiring will speed up as well. We recruited 900 people. We recruit over 1,000 people in the second half. Then there are two more technical points. Axel mentioned the free share plan. This is a very important one, free shares available to all employees. That will weigh on us for the full year vesting period to the tune of €600 million, impacting mainly the second half granted 15 June this year. So this doesn't impact the results of the first half.
Lastly, I also mentioned this, we're speeding up investments in SaaS mode. Previously, as you know, these were booked as CapEx. But hence forth, they're expensed. So we're going to step up our investments both in infrastructure retail and logistics.
Thank you for this detailed answer.
Thank you. Following question, Thomas Chauvet, Citi Company.
[Interpreted] Two questions, please. The first concerning tourism and the rebound that we see this year in Asia and in Europe. If it's not element of your strategy, can you tell us which markets of yours have benefited from this rebound of tourism in the second half? And tell us in Silk and Textiles, what are the divisions now that benefit from demand from tourism? I'm thinking of watches, ready to wear, perfumes.
And my second question, following that of Charles-Louis on the margins of the second half. Eric, can you remind us as well of the one-off elements that may have impacted the margin in the second half of last year? Over and beyond the foundation impairment, there was a considerable increase of impairment costs on J3L and Russia, if I remember correctly, in the bonus to the employees. Can you tell us about the gain on the exchange options that had affected the P&L last – second half of last year?
[Interpreted] I'll let – I'll maybe answer the first half of the question before you come to the financial model. Tourism, we see a rebound. It doesn't change our strategy. And this is one of our strengths that helped us during the COVID. We are very close to the – we are strong and close to our local customers. They are the ones that remain a main driver for the success of the first half of the year.
Okay. Where do we see tourism flows henceforth? Widely, I would say Europe, in particular, tourism flows in the Middle East, South Asia and America. And in the U.S., we see local tourism, and there's tourism in Hawaii, which has increased, and intra-Asia tourism, which is relatively strong and which is very much present.
But this being said, the main source of growth remains, of course, the local customers in our countries. But we also see this year with the return of tourism is a return of sales. And duty-free, in particular, the airports, which are coming to a relative high level, and they had been impacted.
So all the business lines, all the métiers are doing well with the tourism. It's not just silk and textiles, it's leather, and, of course, some are more difficult than others. The sofas, of course, are sold to local customers for reasons of practicality. But the strength of Hermès lies and the success of the first half of the year lies in the great attractiveness that we can have – that we have for all our métiers at the moment whatever be the type of customers.
But before I give the floor to Eric, if I may, without being an expert on the financial model, there are two subjects. Historically, if you will note that historically, the margin in the first half is always higher than the second half of the year because there's more investment in first half, there's more communication in the second half of the year and more recruitment.
So if you look at the five, six last years or rather 10 years since I've been CEO, we've had historically a better margin in H1 than – the first half over the second half. The second thing, which is interesting and disturbing and I'm going to more qualitative is the base of comparison. I think what's a bit different in the last years is you have two types of basis of comparison.
One is the one I would call normal, that of your success of the year. And I'm not saying that to galvanize the troops, the success of this year, which will be the problem for next year because you'll have to beat it. So this base of comparison is quite high because there's a big success. And you see that despite this, the first half we got good results. And then you have a base of comparison, which is more complex, which is related to COVID.
We're in a house where – we have a production which is capped by the number of persons and the number of hours worked. And there is such a demand for our product that we catch up this post-COVID closure.
So you have a basis comparison that when you have Q2, which is a bit close you catch up in Q3, and then you have higher sort of historical performance in Q3, then catch up for it in Q4. So there's a division over time. There's a COVID effect, which can be more complicated to put into a model as compared to a classic basis of comparison.
[Interpreted] On your very specific questions on profitability. Russia, the cost for Russia was booked in the first quarter, not in the second last year. Gains on options, around €20 million in the second half. The €40 million I mentioned in the first half this year due to account and considerations were recognized in the books end of last year when the dollar was at parity. But then there's inventory sell-through, but the cost and the profits were taken in this first half.
As to the impairment expenses, no changes. Regularly, we have a small amount from one half year to the other. But there's no big swing compared to last year. Thank you.
The next question from Edouard Aubin from Morgan Stanley. Go ahead.
[Interpreted] Hello. Good morning from Morgan Stanley. Two questions. The proportion of VIP clients, has there been an increase in them this year versus last year? If so, any differing geography, China versus the United States?
And the second question, on prices, we observed on ready-to-wear and shoes price increases in May, I believe in the U.S., in China in August I think, and in Japan as well. Why are these price increases midway through the year to adjust taking into account exchange rate fluctuations, could you comment on that?
Then a follow-up question for Eric on the impact of the free share plan. You talked about €600 million. What about the impact on the income statement in the second half? Thank you.
[Interpreted] Thank you. I'll respond to the two questions. I'll leave the P&L impact to Eric. Okay, the strength of Hermès is a marvelous loyal customer base year upon year. But for these figures, it's also the success of the increase of the middle classes. And I think this is something very important. I don't think we realize this from Europe, but it's the increase of middle class in Asia, in the U.S., which draws the success of Hermès and, in particular, middle class is younger, more numerous and richer, which participate in the success and in the very good figures.
You will find the average basket, the highest average basket in Asia, not just in China but in South Asia as well as compared to all the other countries with the U.S.A., well placed. All our customers are very local and quite different, be it the American, the Chinese, the Italian, the German, the French, but we do have a sort of a base of loyal customers.
And then for the prices, you surprised me somewhat because we've increased our prices in the beginning of the year only. There have not been any other price increases in Hermès as far as I know. I don't know, the team is very multi-local on which in the USA price growth of 3.5% was one of the strengths of Hermès. And that is what you find in the operational profitability that most of our growth is neither scope or price related, but organic that of volume, which explains has always a beneficial effect on the profitability.
Eric, did I say something wrong?
[Interpreted] No, there were no additional price increases since January, February of this year. Now on the free share plan, it's a plan with a vesting period of four years in compliance with IFRS standards. The expense is staggered over the four years of vesting. So we'll take six months in the second half, €3 million under the plan in the first half, so a big impact in the second half.
The unknown element in terms of the expense of the plan will be taxes based on the share price in four years' time. So we have to – however our working assumption is hard to know what the share price is going to be four years down the road. And we may possibly listen to some of our analysts and what they estimate our share price might be four years down the road. Thank you.
[Interpreted] In the meantime, well, what can we say, that we've had a very good first half with the basis for comparison which is favorable, in particular for China, which went through health problems last year and organically growth as we had in Q4 in China or for Q2 today for the USA. So the house continues its development and its growth. And with a very good first half of the year, we don't see any change, but the habit of Hermès to have in the first half a bit of margin – operational margin than the annual one.
Antoine Bregeaut, BNP Paribas. You have the floor, sir.
[Interpreted] Hello? You made me smile wit your comment on the sofas, which are a bit difficult to buy in the travel retail stores. Now more seriously, I have two questions and some follow-up questions to come on the very beautiful performance in Europe and France what 20%, 22% about 20%. Would it be possible in the second half what was the trend with the locals? Was it higher than 10%. Some of your peers have noted that in June, there was a slowdown with the locals.
My second question is on the gross margin. Understood the impact of €40 million. But if you group together all the accumulated exchange effect, including the options, in base points where do we stand? And we see that for the calculation of the income, when this currency effect will affect you? When will this hedging function not function anymore? And I have an additional question on leather first half 21% minus increase of price. And you said there's not been any other. So 21, 7 – that's 14 coming to 8 in H2, a gap of 14. Are there elements of the mix that could explain this beautiful performance?
[Interpreted] Lots of questions there. I'll answer briefly. We don't have a breakout like that, local versus non-local, particularly in France. The two – both clienteles saw growth in the first half. It is true, clearly, the average purchase is greater amongst our non-local clients. We've got a lot more French clients than non-French and that explains the very good performance in the region, plus the euro weakened somewhat, which makes the eurozone attractive to international tourists.
Regarding leather. It's a very good point. Your question is fairly complicated to get an understanding here. Our production capacity is pretty much set. It's easy to calculate. I'll leave it up to you to do the calculations. It's about the number of artisans multiplied by 34 hours work a week times the number of – and divided by the number of bags to be made.
Our production is first enforced by human beings and artisans. We're fortunate to have very strong demand by our clients. So you can have – as I was trying to say, in comparison basis that are difficult due to COVID. When a store is closed, you sell basically nothing. And you catch up for those, make up for those sales in subsequent quarters after reopening, plus there's new production.
So two effects here in the first half. The first effect was we had good production, good productivity. To put it simply, the artisans took less sick leaves in the first half than the previous first half where there was still COVID in the country.
And then the second point, you don't sell when the stores are closed. Particularly in China, stores were closed. So that really skews the comparison base and gives us the plus 21%. Last year, Q3, the comparison base, COVID [indiscernible] was a little stronger because in Q2 in leather in China, for instance, we didn't sell things, but in Q3, we did sell the previous quarter's production plus Q3's production in China.
I was disappointed of myself regarding communication in Q4 2021, where we've been told that was not doing that well. One-time COVID effects, we sold basically the full-year leather production in Q4. Our production continues to be in line with our targets. With price effects, this can vary due to COVID effects. We're recovering, making up for what wasn't sold in a given quarter and that can lead to fluctuations. But it doesn't change. That's why I said there's no change in the trend. It doesn't change the overall thrust. You can see this reflected in the inventory. We sell our production directly to our clients.
[Interpreted] To build on what Axel is saying about tourist clientele in France and in Europe, East and South Asia, the Middle East and Americans, the Chinese are not yet highly present, not in France and only fairly marginally present in Europe. On foreign exchange hedging, Antoine, you know our rule of thumb. The flows for 2023 have been hedged and we've begun hedging for 2024. Of course, at rates that are negatives due to the changes in the dollar, the yen and renminbi. So we are hedged for this year. Lastly, what made for the huge big profitability in the first half? The success of the ready-to-wear collections and all the fashion business lines. Our sell-through rates there, amounts produced that were sold were very high. So that were very, very high. So thanks to the success of all of our fashion business lines in the first half. Thank you very much.
The following question from Zuzanna Pusz, UBS. So you have the floor.
Sorry, this one will be in English. So first of all, maybe a question on Americas...
Loudly, because it's difficult to hear you. I'm sorry.
[Indiscernible] Can you tell maybe a bit more [indiscernible] weakness in terms of operational price points or is the market just [indiscernible] has worked for you. In context of that, can you also maybe explain I believe in the U.S., you've seen a little bit less price increases. So if you could maybe give us an idea of what was pricing in there per meter from new stores. So that's my first question.
And secondly, a follow-up on price increases. So it's been a very clear message for the price increases, this year has been less than 7% of the group level. And I know maybe it's a little bit too early to ask, but how are you thinking about 2024? I'm asking specifically because, obviously, we still have quite a bit of inflation and the quality of your product is really superior to some of your peers that have been really aggressively catching up in terms of the price point. So I would be just curious to hear if you look pricing relative to some of the peers which effectively have reached the same price point as some of your – especially [bad], but clearly your quality is much higher. So any thoughts on that would be very helpful. Thank you.
Well, thank you. As we used to say, we don't look too much at the competition because we may be influenced. So I'm not sure I will be the best one to compare with the other. Two points, the U.S. first. What we've seen in the U.S. for us has been the incredible desirability of the house and our product. And we didn't see that fading at least during this semester with a mix of very faithful clients. And also, traffic will continue to grow in our store and the good resistance of our digital sales. So because I read what you write. I noticed also that maybe it's uncommon compared to the rest of the industry. Having said that, in our store, we see the same traffic flow and desirability. As you'll notice, the price increase in the U.S. is quite limited, 3.5%, which means that most of our growth in the U.S. is done through a volume increase that we have, and we are happy. And so let me congratulate our U.S. team.
For the second one, which is a price increase. We have this strategy for a very long time, sometimes you agree with it, sometimes less, is that our price are done by the cost of production and not by the desirability of the product. And I think it's something which is very important for Hermès and it's a kind of trust that we have between our client of ours. What costs an Hermès bag, for example, is the cost of labor and materials that we put into it. It's not if you like it or not. And there is this client, for us it's about authenticity. And so I'm not looking at the price positioning of the other one. I'm trying to look with my cousin, Guillaume, which is heading production about our prices of goods, cost of goods. But our view is that that's the main driver for our price. And I think that the beauty also of the Hermès model is the fact that we – it's first and foremost, the craftsmanship and the product and the creativity who leads the company.
Thank you very much.
Last question, Anne-Laure Bismuth from HSBC. Your have the floor.
[Interpreted] Two questions. I'd like to come back to the United States and the strong dynamic movement in Q2. Is it valid for all categories of products or you've seen slight slowdown in certain products? Second question, for China. Would it be possible to indicate the growth rate in China with the Chinese customers in Q2? Thank you.
[Interpreted] Thank you. I'll begin by answering on China, it's fairly straightforward. Growth throughout Asia, excluding Japan, is fairly uniform. On average – well, the average is very similar in all the countries, very great successes in Mainland China, in Korea, in Singapore. Lots of success in Australia. I'm not trying to brag. We have to remain humble. The world is very unstable. But there is nothing specific to China in this respect if we look at the figures that we've given for Asia.
Now the Americas, let me look this up. The métier mix, well, we're doing well on all products. All of them have grown nicely, all product categories. I read, as did you, and I suspect this is what you're getting at, some people said aspirational customers in smaller cities and so forth. It's true compared to maybe some others. Our retailing is a bit tighter in the U.S. But it's all of our business lines that have grown, all product categories. Its true possibly strong growth in shoes in the U.S. and jewelry, ready-to-wear. But that is almost all the métiers. And the ones I forgot to mention, it's not that they haven't been growing too, they have been.
Remember, Hermès is part of a marketplace in an overall environment. If the marketplace becomes much tougher, more problematic in the longer term, then we'll be affected as well. But we observe in the second – in the half, great success in all of our stores in all product categories. It's also true, the big stores. For instance, in Los Angeles or New York, they performed particularly well. So I'm sorry, I can't comment very much on the U.S. specifically. I'll leave it up to your wisdom. You maybe more familiar with our industry than I, to explain why there maybe a de-correlation, a disconnect between Hermès and other companies' results.
I can tell you with Eric, we spend time going our own road, not looking too much at what the other guys are doing. And we don't see any drop in the attractiveness of any of our products in the United States. Let me say this. Regarding the U.S., for quite some time, I've said this, it's still a territory with many opportunities, a great deal of potential. French brands can continue making inroads in the U.S., can continue winning over new customers in the United States even more broadly. Financial analysts and major institutions such as you know this very well. But during tough financial times, there's a flight to quality. Possibly, we reaped some benefits from that. When people were somewhat anxious, there may have been a flight to quality. Hermès is recognized for its quality regardless of other people's price positioning. I do not believe that's an issue.
Since we've come to the end, I would like to thank all of you for taking part. I believe you've understood. It's a great pleasure and admiration for our employees that I submit to you these results that are somewhat atypical, it's true, and excellent results. As every year, H1 has got a stronger margin than H2. I'll let you do your own calculations and your risk taking. It's true, you have to be modeling comparison basis and take account of COVID in the comparison base. They can vary from one quarter to another due to COVID, especially for companies such as Hermès where we catch up. We can make up for sales that didn't take place during the COVID period. This impacts on stories. And that's why I thank you in advance. By 2025, we'll have gotten rid of the COVID effects and we'll only talk about operational considerations and growth. This is why we're not changing our outlook, which continues to be ambitious. You see that our results are significant, but we cannot extrapolate the results for H2 because there's always a difference between H1 and H2. I'll leave it up to you and your great wisdom.
Thank you very much for listening this morning. It's been a pleasure for us. Thank you very much.