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Hermes Profit Up 7.8 Percent in Half

Hermes International said on Thursday that solid sales at its retail network helped lift first-half profits 7.8 percent.

PARIS – Hermès International said on Thursday that solid sales at its retail network helped lift first-half profits 7.8 percent.

The luxury giant said it would sell its stake in the high-end Leica camera business for about 15 million euros, or $19.1 million.

For the first half, profits climbed to 184.6 million euros, or $228.4 million at average exchange. While the results met most analysts’ expectations, they lagged behind those of Hermès’ main luxury competitors.

Last week, PPR said operating income at its Gucci Group division surged 69.6 percent in the first half, and LVMH Moët Hennessy Louis Vuitton reported a 46 percent leap in profits in the first six months, making a firm case for luxury’s solid footing.

Mirelle Maury, managing director of finance and administration at Hermès, said the company was on track to meet its full-year target of constant currency sales growth of around 7 percent.

She said sales in August and early this month were robust, led by acceleration in North America and continued strength in Europe.

“There was a veritable acceleration in the second quarter of 12 percent in the Americas,” said Maury. “That trend continues in the third quarter.”

Maury said first-half sales growth of 6 percent in Japan should help sustain momentum through the end of the year as Hermès prepares to unveil an extension to its Hermès House flagship in Tokyo’s Ginza district next month.

Maury added that sales in Europe, which increased 12 percent in the first half, looked set to grow 10 percent in the second half.

Maury said demand for leather goods — including the perennial best-selling Birkin bag and the Paris-Bombay purse — continued to exceed the firm’s supply capacity.

She said 300 artisans had been hired in the first half to boost production and existing factories would be expanded in the second half.

First-half gross margin was stable at around 65 percent, she continued, and operating margin reached 26.4 percent, also on par with last year.

Maury said spending on communications and advertising in the first six months through June grew 18 percent. She said communications spending would advance about 20 percent for the full year.

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The firm is preparing to open 20 new or expanded stores in the second half, including a new Hermès House flagship in Seoul, and stores in Venice, Gstaad and Charlotte, N.C.

On Thursday, the firm reopened its store on Avenue George V here, just off the Avenue des Champs-Elysées, after several months of expansion work.

Christian Blanckaert, executive vice president of Hermès International in charge of international affairs, called the store an important part of Hermès’ strategy to deepen its roots here.

The firm’s flagship on the Rue du Faubourg Saint-Honoré will be expanded by a third by 2008, he said.

“We are a family-run, Paris-based firm,” he said. “That heritage is important to emphasize.”

Blanckaert said the expanded George V store, across the street from the Four Seasons hotel and down the street from Louis Vuitton’s flagship, should generate as much as 50 million euros in first-year sales.

He said it should generate about 20 percent of the firm’s retail turnover here.

Designed by Rena Dumas with a light and clean modernist touch, the store gained a floor of shopping space, and now measures 3,400 square feet.

It sells all Hermès categories, from housewares and women’s ready-to-wear to silk scarves and Motsch custom-order hats.

“We believe in Paris, and Europe in general,” said Blanck­aert. “This store is part of our broader strategy to grow in Europe.”

 

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