Hermès Ups Full Year Targets After Sales Growth

Hermès Spring Summer 2013 Campaign | Source: Hermès

PARIS, France — Luxury scarves, bags and watches maker Hermès raised its full-year targets after beating quarterly forecasts on Thursday, with demand strong in most sectors even in the face of a slowing Chinese economy.

Global demand for luxury goods has been patchy this year, hit by a drop off in tourists shopping in Europe and a weaker tone in China, the industry’s growth engine, where the government has moved to discourage excess among officials.

Hermès, like other top-end watchmakers, said the market for its timepieces in China was suffering from the crackdown on the tradition of gift-giving to party officials and business leaders to facilitate transactions.

But watches make up less than 5 percent of the company’s business, and overall sales in Greater China, including mainland China, Hong Kong, Taiwan and Macao, rose 21 percent at constant currencies in the first half, Chief Executive Axel Dumas said.

“We are seeing growth in all of our divisions,” Hèrmes’s new Chief Executive Axel Dumas told Reuters in an interview, saying only that sales growth was slower in watches.

The maker of 500-euro printed silk scarves and 12,000-euro Birkin leather bags said it was getting closer to reaching last year’s record of 32.1 percent for its full-year operating margin, having previously predicted a fall.

Pressed on whether the margin would reach 32.1 percent, Dumas said: “We are going to get close to it.” He declined to extrapolate.

Full-year sales growth should slightly exceed its mid-term growth target of 10 percent, the company said, and recurring operating income will increase slightly faster than revenue.

Overall Hèrmes posted a 16 percent rise in second-quarter sales at constant exchange rates, beating analysts’ consensus forecast of 13.5 percent and a 12.8 percent rise in the first quarter.

The trading update lifted company shares 2.6 percent to 257.7 euros by 1001 GMT, valuing the French luxury goods maker at 26.6 billion euros.

RICH

Another sign of how demand among the world’s affluent is holding up as governments scythe back on welfare and other spending came from spirits group Remy Cointreau.

It predicted that demand for its flagship cognac brand in China would remain sluggish in the second quarter and first quarter sales were also hit by the government drive to rein in conspicuous consumption.

Paris-listed Hèrmes, which started as a saddle and harness maker in 1837, is Europe’s third-largest luxury goods group in terms of market capitalisation behind Richemont and Louis Vuitton, which reports next week.

In spite of the tough economic environment, Dumas said demand remained strong in Europe with second-quarter sales up 15.3 percent at constant exchange while business was also brisk in Japan where there had been a rebound in recent months.

Nick Hayek, chief executive of the world’s biggest watch maker Swatch Group, has said he expects trading to improve in the second half and Hermes reported 3 percent growth of watch sales versus a 5.3 percent fall in the first quarter.

But analysts said inventory levels in China – the driving force for the industry – were still high after Switzerland published figures that showed watch exports to Hong Kong were down 15 percent and down 3.1 percent overall.

Dumas said Hèrmes had not lifted prices in Japan even though the yen depreciated against the euro, contrary to Louis Vuitton, which has raised prices significantly since January.

Hèrmes, known for its Birkin and Kelly leather bags which can take years to obtain depending on the colour and model, said leather goods sales growth remained constrained by production capacity but the group hoped to add two new sites next year. ($1 = 0.7637 euros)

By: Astrid Wendlandt; Editing: James Regan and Patrick Graham