Hermes Q3 Sales Rise 4 Percent

French luxury goods group warns that the rest of the year will be tough in the current economic climate.

Hermès said the economic climate should continue to be rough through the end of the year.

PARIS — Hermès said Thursday that third-quarter sales gained 4 percent, but warned that the rest of the year will be tough in the challenging economic environment and cut its full-year financial targets.

This story first appeared in the November 7, 2008 issue of WWD.  Subscribe Today.

The French luxury firm said sales in the three months ended Sept. 30 rose to 410.5 million euros, or $619.9 million at average exchange rates for the period, from 394.7 million euros, or $540.7 million, in the same period last year. At constant exchange, Hermès said sales gained 7.6 percent, slightly below analysts’ expectations.

Hermès stock closed down 5.3 percent to 96 euros, or $121.90, in trading on the Paris Bourse.

For the nine months, Hermès said sales growth reached 9.7 percent. At constant exchange rates, sales rose 14.2 percent. The company said retail sales grew more moderately in October, at about 6 percent, as the economic crunch worsened and stock markets faltered.

Hermès said the economic climate should continue to be rough through the end of the year. Consequently, the company said full-year sales should increase by between 9 and 10 percent. Hermès also downgraded full-year operating profit projections, saying they should be “close, in absolute value to that reached in 2007.”

While Hermès said its own stores continued to expand at a “solid” 16 percent pace in the third quarter, wholesale sales faltered in the quarter.

HSBC analyst Antoine Belge said the numbers “demonstrate the higher vulnerability of wholesale channels within the luxury industry.”

Belge said wholesale accounts for 29 percent of Hermès’ revenues and estimated that the firm’s wholesale sales declined 10 percent in the quarter. “The read-across for the luxury industry as a whole is that wholesale-driven businesses are likely to be the most vulnerable in this downturn. This does not bode well for watch players Richemont, Swatch and Bulgari.”

Belge added that the impact should be less severe for LVMH Moët Hennessy Louis Vuitton and the Louis Vuitton business itself, which have almost no wholesale exposure “even though sales will inevitably slow further in the fourth quarter, and in 2009 for them, as well.”

Though the dollar has regained ground against the euro recently, Hermès said currency trends produced a negative impact of 50 million euros, or $75.5 million, on sales for the nine-month period.

Sales of leather goods grew 13.6 percent in the quarter, thanks to continued strong demand for Hermès’ Birkin and Kelly bags, which often need to be ordered months before delivery.

Ready-to-wear and fashion accessories grew 5 percent, while sales of silk scarves and textiles advanced 9.7 percent. Meanwhile, perfume sales fell 15.3 percent, watches lost 13.3 percent and tableware sales declined 14.5 percent.

By region, sales in Asia outside of Japan grew 9.2 percent to 75.3 million euros, or $107.7 million. Sales in Japan moved forward 1.7 percent to 92.6 million euros, or $133.4 million, while sales in the Americas grew 8.3 percent to 64.1 million euros, or $91.6 million. Sales in France improved 6.3 percent to 82.8 million euros, or $118.4 million. Revenues in the rest of Europe, however, declined 0.2 percent to 87.4 million euros, or $125 million.