By  on February 9, 2006

PARIS — Hermès International posted a strong finish to 2005, even if its 8 percent gain in fourth-quarter sales, to 437.1 million euros, or $520 million, was behind the double-digit pace of many of its luxury peers.

The results were also a nose shy of analysts' expectations, sending shares of Hermès down 0.1 percent on Wednesday to close at 209 euros, or $249.64, on the Paris Bourse.

On the plus side, "excellent" consumer reaction to the scent Un Jardin sur le Nil lifted sales of the perfume category by 12.5 percent for the full year at constant exchange, Hermès said.

The fashions of Jean Paul Gaultier, now in his second year as designer of Hermès ready-to-wear for women, also helped "revitalize" its rtw and accessories division, where full-year sales rose 7.6 percent.

Mireille Maury, managing director of finance and administration at Hermès, highlighted an acceleration of growth in the second half and a "very good" month of December, when sales were up 17 percent in its European boutiques. She said January and February sales were "in line" with the overall trend of 2005, and that an increase in margins would allow Hermès to achieve a double-digit gain in operating profits, which the company is slated to report March 23.

Meanwhile, Hermès plans to ramp up its schedule of store openings and renovations to 30 this year from eight in 2005. Forthcoming openings include a Maison Hermès in Seoul, South Korea, a new seven-story building slated to open in June. Hermès' glass brick Maison in Tokyo's Ginza district will be enlarged come October with a new neighboring building that has 5,000 more square feet of selling space. New locations for this year include Amsterdam; Charlotte, N.C.; Bangkok, and Hangzhou, China.

In the quarter ended Dec. 31, sales rebounded in Europe, excluding France — up 16.9 percent at constant exchange to 79.1 million euros, or $94.1 million. Sales in Japan, which account for 29 percent of Hermès' total business, were up 7.2 percent in the period to 128.5 million euros, or $153 million, a big improvement from a "weak" first half, Maury noted. Sales gained 7.9 percent in Asia-Pacific (to 68 million euros, or $81 million) and a modest 1.3 percent in the Americas (to 67.9 million euros, or $80.7 million), which Hermès blamed on fewer selling days. "The trend there remains good," she added.By category, sales of high-margin bags and luggage increased 5.4 percent at constant exchange to 169.2 million euros, or $201.2 million. Hermès said increased production capacity boosted the division, but that demand continues to outstrip supply. Maury said leather handbags were among the best performers, particularly the Birkin, Kelly and Bolide models.

In a research note, Goldman Sachs analyst Jacques-Franck Dossin applauded a decision by Hermès management to cut production of canvas bags, which threatened to undermine its brand image. These "were initially launched as beach bags, but became increasingly used as city bags, particularly in Japan," Dossin wrote.

Overall, he characterized the fourth-quarter performance as "good," given a challenging basis of comparison. "We continue to see Hermès as one of the companies with the strongest brand equity in the sector," the report said.

In the rtw and accessories category, which includes men's wear by designer Veronique Nichanian, sales rose 7 percent at constant exchange to 79.7 million euros, or $94.8 million, in the quarter. Watch sales, however, slipped 2.1 percent to 33.2 million euros, or $39.5 million.

For the full year, sales gained 7.2 percent to 1.43 billion euros, or $1.78 billion. Dollar figures are converted at average exchange rates for the respective periods.

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