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.

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