Hermès Sales Jump 10.1% in Q1

The French firm is maintaining its long-term guidance for 10 percent annual growth despite currency headwinds.

PARIS — Hermès International said Tuesday it was maintaining its long-term guidance for 10 percent annual growth at constant exchange rates, even though sharp currency fluctuations wiped 40 million euros, or $54.8 million, from its books in the first quarter.

This story first appeared in the April 30, 2014 issue of WWD.  Subscribe Today.

The maker of Kelly bags and silk scarves reported sales rose 10.1 percent in the three months ended March 31, boosted by continued strong growth in Asia and the Americas. When stripping out the impact of exchange-rate variations, this represented an increase of 14.7 percent, beating market expectations.

Patrick Albaladejo, deputy managing director in charge of strategy and image at Hermès, said the currency impact was mainly due to the continued weakness of the Japanese yen. Though Hermès chief executive officer Axel Dumas warned analysts last month to expect a drop in profit in 2014 in light of the strong currency headwinds, Albaladejo said it was difficult to forecast their full impact.

“When you see the violence and the suddenness of the yen’s movements, I don’t see who could really make that prediction at this stage,” he said. “Macroeconomic currency movements are a factor that is beyond our control and that we have to put up with. There is nothing we can do about that, so what you have to look at is: What is the underlying vitality of the business? And today, it is very good.”

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At constant exchange rates, sales in Asia-Pacific, excluding Japan, rose 17.7 percent during the period. Sales in Mainland China were up around 16 percent, according to Albaladejo, while turnover in Japan jumped 21.7 percent as consumers brought forward big-ticket purchases ahead of a rise in sales tax on April 1.

The Americas registered 17.9 percent sales growth, while Europe advanced 9.5 percent.

Albaladejo was cautious about projecting growth for the rest of the year.

“We know there will be a correction in Japan,” he said. “It is very difficult to quantify. So we are very attentive. We are tracking events, but we have no other target than our stated objective of average growth of 10 percent. We have no visibility beyond that.”

Nonetheless, Hermès remains confident about its long-term prospects in Japan, which accounted for 12 percent of total sales in the first quarter. “We have never had a negative vision of Japan, even when times were tougher. We never stopped investing. We remain confident in the potential of this market,” he said.

The French luxury firm also sees strong growth potential in the U.S., where it has been renovating and enlarging stores such as its flagship in Beverly Hills. “The United States of course is a mature luxury market…but one that has the same potential for Hermès as an emerging market,” he noted.

Albaladejo described Europe’s performance as “very encouraging” given the continued economic difficulties the region is facing. “It shows the vitality of demand for Hermès products, even in Europe,” he said. “For us, it is very important to keep a very solid base of local customers.”

Though Dumas recently estimated that Russian customers account for “well below 5 percent” of the firm’s business, Hermès is keeping close tabs on the political situation there, which this week prompted the U.S. and European Union to impose further sanctions over Russia’s actions in Ukraine.

“We are very attentive and we are of course following what is happening in Russia, in particular in our stores and regarding Russian customers outside Russia. To date, in other words, as of last week, we had not observed any measurable effect on our business of the events in Ukraine,” Albaladejo said.

The company’s overall revenues in the three months ended March 31 totaled 943.5 million euros, or $1.29 billion, up from 856.8 million euros, or $1.13 billion, during the same period a year earlier. All dollar rates are calculated at average exchange for the periods to which they refer.

Sales in its own stores were up 16.7 percent at constant exchange rates, fueled by strong demand for ready-to-wear and fashion accessories, which registered a 19.1 percent increase, and other Hermès sectors —spanning jewelry to tableware — which posted a 17.2 percent rise.

Sales of leather goods and saddlery, including the iconic Birkin bag, were up 15.5 percent in the quarter, while sales of perfumes rose by a more modest 5.9 percent. Meanwhile, watch revenues eased 0.1 percent amid continued weakness in the key Asian market.

“Hermès will continue its long-term strategy based on creativity, maintaining control over its know-how, expanding its distribution network, strengthening its production capacity and securing its supply sources,” the company stated, adding that its theme for 2014 was metamorphosis — “precious metals becoming objects in the skilled hands  of craftsmen.”

The figures show Hermès again outperforming its industry peers. Kering last week reported revenues at constant exchange rates rose 4.1 percent in the first quarter, while LVMH Moët Hennessy Louis Vuitton posted a 6 percent increase.

Shares in Hermès closed up 0.2 percent at 255.15 euros, or $350.87, on the Paris Stock Exchange.