PARIS — Fear of SARS has put a damper on luxury firms’ short-term outlooks just as fear of a war in the Persian Gulf did several months ago.
Both Hermès International and Bulgari posted better-than-expected first-quarter results Wednesday, but their results were tempered by the detrimental effects of the strong euro and their outlooks by concern over the disruptive effects of SARS on business in east Asia.
Slammed by negative currency effects, sales at Hermès fell 3.2 percent to $336.4 million in the first quarter versus $347.6 million a year ago.
However, analysts characterized it as a healthy performance since organic sales growth, eliminating the effect of currency fluctuation, amounted to 5.5 percent in the period — above their expectations. They praised strong sales of leather goods, up 10 percent in real terms; impressive figures in Japan, up 14.2 percent in local currency, and the rest of Asia, up 18.6 percent in local currencies.
However, business was weak in Europe in the quarter due to a downtick in tourism. Also, a sharp slowdown in sales in April suggests that the geopolitical situation and SARS are weighing on the luxury sector. Sales for the four months ended April 30 slipped 6 percent, but were up 3 percent at constant currency.
Morgan Stanley analyst Claire Kent downgraded her second-quarter sales forecast for Hermès to a 15 percent decline from a 10 percent drop based on the “sharp deterioration” in April. “Originally, we had included a severe impact from SARS [in the second quarter] for two months,” she wrote in a research note. “We now believe that this will last through June.”
Antoine Belge, luxury analyst at HSBC in Paris, said the April slowdown “does not bode well for the luxury sector,” but stressed that Hermès remains one of its top picks, partially because of its insulation from the SARS effect.
“The good surprise came from Japan since the group was facing a very tough basis of comparison [plus 40.7 percent in the first quarter of 2002],” he wrote in a research note. “This confirms our belief that Hermès’ strong retail network in Japan allows the company to benefit much more than most of its peers from a partial transfer from travel retail to domestic market.”In a statement, Hermès said sales in Europe fell 4 percent to $123.3 million from $128.5 million a year ago due to a drop in tourism. According to Belge, sales at the Paris flagship on Rue du Faubourg Saint-Honoré were off more than 10 percent. In the Americas, sales increased 8.4 percent in U.S. dollars, but fell 10.2 percent to $45.8 million versus $51 million in the year-ago quarter in real terms.
By product category, only leather goods and “other products” — a group that spans stationery, enamel, jewelry, gloves, hats and shoes — posted increases. Sales of watches fell 24.9 percent; silk, 12 percent; perfumes, 6.1 percent, and ready-to-wear was off 3.7 percent.
Antoine Colonna, analyst at Merrill Lynch in Paris, said weak silk and perfume sales reflect the drop in travel flows, while the downtick in watches reflects “the difficulties of the category this year.”
But he described the performance in Japan as “remarkable” and said the stock could reach $195.79, with the main risk being a further drop in tourism “if SARS spreads to Japan.” Shares of Hermès closed Wednesday up 1.8 percent to $146.61 on the Paris Bourse.
Double-digit sales growth in accessories and markets like Asia and Italy lifted Bulgari’s first-quarter profit and revenue as the firm reiterated its concerns over the damaging impact of SARS.
Net profit for the three months ended March 31 rose 26.7 percent to $13.2 million from $10.4 million in the year-ago period. Revenue rose 3 percent to $185.2 million, but Bulgari said growth would have been 9 percent at constant exchange rates.
In particular, Bulgari said its margins were hit by a strong euro against the dollar and the yen. Operating profit rose 1 percent to $18.7 million.
Last month, Bulgari chief executive Francesco Trapani told shareholders that the epidemic might cause the jeweler to miss its 2003 targets for 10 percent profit and revenue growth. On Wednesday, he reiterated his concerns over SARS.
“Unfortunately, an immediate return to a stable and serene business environment — a fundamental premise for further expanding our activities — seems temporarily postponed due to the SARS effect,” Trapani said Wednesday. “The SARS effect is negatively impacting our business in Southeast Asia, and is also influencing the flow of travelers with a consequent reduction of sales in all countries that are very dependent on it.”Still, Asia appeared to be a bright spot for Bulgari in the first quarter. Sales in Japan and the rest of the Far East rose 17 and 25 percent, respectively. Together they account for 41 percent of Bulgari’s total revenue. Italy was also strong, registering a 15 percent increase.
A slowdown in tourism hit sales in the rest of Europe, which fell 12 percent. Revenue from the Americas also dropped by 12 percent, but Bulgari said it would have risen 4 percent on a constant-currency basis.
Accessories, albeit a relatively small category for Bulgari, saw its sales rise by 82 percent. It made up 9 percent of Bulgari’s turnover for the quarter. Jewelry and watches, which make up 38 and 33 percent of revenue, respectively, were relatively stable. Watch turnover rose 1 percent, while sales from jewelry fell 1 percent.
Fewer customers in airports and other travel retail points caused revenue from fragrances, which make up 17 percent of Bulgari’s sales, to drop 9 percent.
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye
Did you know: @carlychaikin of "Mr. Robot" has been painting for about a decade? The actress, who plays Darlene on the show, is a self-taught artist who lists Salvador Dalí and Chuck Close as some of her idols. Chaikin told WWD that painting is a form of meditation for her — A much-needed one given the intensity of "Mr. Robot." See a piece Chaikin is working on at WWD.com (📷: @jilliansollazzo) #wwdeye