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Keeping Up With Demand Key for Hermès in 2012

The French luxury brand beat its sales target in 2011 on the back of a better-than-expected performance during the crucial year-end holiday season.

Hermès Toolbox handbag.

PARIS — Production capacity is the challenge for Hermès International in 2012, as it races to keep up with demand for its Birkin bags and silk scarves.

The French luxury brand beat its sales target in 2011 on the back of a better-than-expected performance during the crucial year-end holiday season, and it expects revenues to continue growing at a double-digit rate this year, depending on how well it can keep pace with demand.

“We are approaching 2012 with confidence,” Mireille Maury, managing director of finance and administration at Hermès, told WWD. “Demand is very strong and our sales growth depends on our capacity to respond to it.”

Hermès is opening two leather goods factories in France this year and plans to hire at least 600 additional people, more than half of them in its workshops, to cope with bottlenecks that have curbed sales of some items, such as leather goods.

Maury reiterated the firm’s medium-term target of posting a 10 percent annual revenue increase at constant exchange rates. Hermès did significantly better than that in 2011, with a sales increase of 18.3 percent, exceeding the company’s most recent forecast of a 15 to 16 percent bump.

The firm, which will report full results on March 22, again raised its guidance for last year’s operating margin, which it now expects to exceed 30 percent of revenues in 2011 versus 27.8 percent in 2010.

“[Last year] was all the more exceptional in that it came after a very strong 2010, meaning that in the space of two years, sales grew by more than 40 percent at constant exchange rates,” said Maury.

The data confirmed that luxury sales maintained momentum heading into the new year, despite fears of a fresh recession in the euro zone and signs that growth rates are normalizing in China.

LVMH Moët Hennessy Louis Vuitton, which owns a 22.3 percent stake in Hermès, said revenues advanced 20.4 percent in the three months to Dec. 31, while Burberry and Compagnie Financière Richemont posted gains of 22 percent and 24 percent, respectively.

Hermès reported revenues rose 15.8 percent during the period to 852.5 million euros, or $1.15 billion. Stripping out the impact of currency fluctuations, sales were up 14.3 percent in the fourth quarter. All dollar rates are calculated at average exchange rates for the period concerned.

Revenues from its network of directly owned stores rose 15.5 percent in the fourth quarter. Sales of ready-to-wear and fashion accessories were up 28.8 percent, while silk and textiles registered a 15.5 percent increase. Leather goods and saddlery rose by 10.2 percent, hampered by insufficient production capacity.

Wholesale revenues were up 14.3 percent in the fourth quarter, with perfumes up 17.1 percent, watches posting a 14.9 percent increase and tableware rising 7 percent.

In regional terms, non-Japan Asia again registered the best performance in the quarter, up 26 percent, followed by Europe — excluding France — which posted a 19.4 percent rise. In the Americas, sales rose 16.7 percent in the fourth quarter.

Hermès said it would pay an interim dividend of 1.5 euros, or $1.94, per share on March 1. In 2011, the company bought back a total of 1,292,215 shares worth 286 million euros, or $323.6 million.

Hermès opened 13 units, renovated or enlarged eight stores and took over four concessions. It plans to open or renovate another 15 stores in 2012, with planned openings in Taiwan and Abu Dhabi in April.