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SARS, Lack of Tourism Drop Sales at Hermès

PARIS — Hit by a dramatic drop in tourism in Europe and negative currency effects, Hermès International saw its second-quarter sales slip 9.2 percent to $290.4 million from $319.8 million a year ago.<br><br>Dollar figures have been...

PARIS — Hit by a dramatic drop in tourism in Europe and negative currency effects, Hermès International saw its second-quarter sales slip 9.2 percent to $290.4 million from $319.8 million a year ago.

Dollar figures have been converted from the euro at current exchange. In local terms, the firm reported group sales in the quarter ended June 30 were 257.2 million euros versus 283.3 million euros a year ago.

Still, organic sales growth, excluding currency effects, in the quarter stood at 1.1 percent, slightly better than analysts’ expectations and bolstering their confidence that Hermès will continue to outperform most of its peers during a difficult period for the luxury sector.

“These results confirm the defensive characteristics of the stock,” noted Jacques-Franck Dossin, analyst at Goldman Sachs. “The brand’s high price points mean its customer base is less aspirational and less cyclical in its buying patterns.”

In a statement, Hermès said April sales were affected by the SARS outbreak in Asia and that European tourism was “particularly affected” in the quarter.

Antoine Belge, luxury analyst at HSBC in Paris, estimated April sales fell 4 to 5 percent, stabilized in May and rose in June about 6 percent. In July, sales likely increased in line with the first half, about 3 to 4 percent, he added.

Belge said he was surprised by the magnitude of the drop in European sales during the quarter: 11 percent overall, with a 14 percent descent in France. He estimated that sales at Hermès’ usually bustling Faubourg Saint-Honore flagship fell 12 percent, since that unit depends on tourists for roughly a quarter of its clients.

Claire Kent, luxury analyst at Morgan Stanley in London, was also surprised at the “severe” weakness in Europe and the deterioration in the second quarter. “We believe that European tourism is unlikely to recover significantly before the end of the year,” she wrote in a research note.

On the positive side, analysts said Hermès was surprisingly resilient in the Asian Pacific region where, despite SARS’ impact, sales were flat at constant currency. Hong Kong and Singapore saw sales plummet as much as 30 percent in April, but all other countries performed well, she noted.

This story first appeared in the August 14, 2003 issue of WWD.  Subscribe Today.

Japan, Korea and the Americas all reported sales increases in the second quarter, rising 16, 14 and 6 percent, respectively, Hermès noted.

Leather goods, Hermès’ most important product category, remained strong, with sales in the quarter up 5 percent, according to analysts’ calculations. Sales of ready-to-wear and fashion accessories, now categorized together, fell 18.6 percent.

For the six months, overall Hermès sales fell 6.1 percent to $620.2 million versus $660.6 million a year ago. French companies report sales and earnings separately. Hermès should report complete first-half results in September.

In the half, sales of silk fell 5.2 percent at constant currency, while watches, the weakest division so far this year, were down 15.9 percent.

Shares of Hermès International rose 3.5 percent to close at $142.03 on the Paris Bourse.