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Hermès Forecasts Steady Growth

Luxury firm Hermès posts a flat profit for 2009, and a 3.1 percent rise in operating income for last year.

PARIS — Hermès expects to continue logging steady sales growth in 2010 after posting flat net profits last year and beating initial expectations for operating profit, thanks to an uptick in fourth-quarter sales.

This story first appeared in the March 26, 2010 issue of WWD.  Subscribe Today.

“For 2010, we are relatively cautious,” Hermès chief executive officer Patrick Thomas told WWD following the release of the luxury brand’s full-year results on Thursday.

“We forecast a rise in sales of more than 5 percent at constant exchange rates,” said Thomas, adding that Hermès aimed for a stable operating margin in 2010.

Net income totaled 288.8 million euros, or $402.7 million, in the 12 months ended Dec. 31, compared with 290.2 million euros, or $426.9 million, in 2008. Currency conversions are calculated at average exchange rates for the periods concerned.

Operating income rose by 3.1 percent to 462.9 million euros, or $645.6 million, from 449.2 million euros, or $660.9 million, the previous year. The operating margin fell by 30 basis points to 24.2 percent as destocking dampened activity in the perfume and watch divisions.

The rise in operating income was in line with the company’s revised forecast for an increase of 3 to 4 percent, versus an earlier forecast of a 5 percent drop. At constant exchange rates, operating income rose by 3.9 percent and the operating margin was unchanged from 2008, Hermès said. As reported, full-year sales totaled 1.91 billion euros, or $2.67 billion, up 8.5 percent on a reported basis and 4.1 percent at constant exchange rates.

Fashion accessories, including belts, shoes and costume jewelry, were the fastest-growing division, Thomas said. Sales of handbags were constant, and scarves and men’s wear recorded healthy progression, he noted.

Thomas said the U.S. was recovering swiftly from last year’s doldrums. “The United States is always surprising. It falls sharply and it bounces back sharply. It’s really a country that reacts more strongly and more brutally in the short term than almost any other,” he noted.

Hermès invested 207 million euros, or $288.7 million, including 80 million euros, or $111.5 million, to purchase jeweler Asprey’s flagship in London.

The company created 163 jobs during the year, and employed 8,057 people at the end of 2009.

Hermès has unveiled plans to open 12 stores in 2010, including four in China, four in Japan and one in Singapore.

“This year, in the short term, the focus is on Asia,” said Thomas. “In the medium term, it will be Latin America, while Russia will also recover. In the long term, [we are looking at] India.”

HSBC maintained a neutral rating on the stock. “We believe that, for once, Hermès sales trends should not under-perform during an industry recovery. Thanks to its classical positioning, Hermès should benefit from the current move away from conspicuous consumption,” the investment bank said in a research note.

Hermès shares closed down 1.8 percent at 103.30 euros, or $138.03, on the Euronext exchange on Thursday.