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Hermès Sales Rise 11.8% in Q2

The French luxury goods firm raised its guidance for 2013 revenues and operating margin.

Hermès tennis bag

PARIS — It appears reports of luxury’s decline might be greatly exaggerated — at least where Hermès is concerned.

The maker of Kelly bags and silk scarves on Thursday raised its guidance for 2013 revenues and margins after reporting an acceleration in sales in the second quarter, helped by a strong performance in the U.S. and sustained demand in Europe and China.

Hermès International said revenues in the three months ended June 30 totaled 910.4 million euros, or $1.18 billion, up from 814.5 million euros, or $1.05 billion, during the same period a year earlier.

This represented a rise of 11.8 percent in reported terms and an increase of 16 percent when stripping out the impact of exchange rate fluctuations. All dollar rates are calculated at average exchange for the periods to which they refer.

“We continue to see strong momentum in every region and every segment,” Axel Dumas, who took over as co-chief executive officer of Hermès last month, told WWD.

“These results reflect first and foremost the success of our new creations, because that is how you keep growing every year.”

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The second-quarter figures beat analysts’ expectations, sending Hermès shares up 4.5 percent to close at 262.45 euros, or $341.37 at current exchange, on the Paris stock exchange.

Hermès said that although it remained cautious, full-year revenues at constant exchange rates could now grow by more than its previous target of 10 percent, putting it ahead of the majority of its peers.

Consultancy Bain & Co. forecasts the luxury goods market overall will grow by 4 percent to 5 percent in 2013, a slowdown from the annual double-digit growth posted in the past three years.

Hermès added that depending on currency fluctuations, its operating margin in 2013 could be close to the record high of 32.1 percent posted last year. Foreign exchange headwinds produced a negative impact of 53 million euros, or $69.6 million, on the company’s revenues in the first half.

The effect was particularly pronounced in Japan, where sales fell 12.5 percent in the second quarter — but were up 8.9 percent when excluding currency effects. Sales in the rest of the Asia-Pacific region were up 15.6 percent during the period.

Revenues in continental China grew 20 percent at constant exchange, Dumas said, noting that Chinese demand for watches remained weak, following a government crackdown on gift-giving, but other sectors were holding up.

Chinese tourists also contributed to the healthy performance in France — up 14.4 percent — and the rest of Europe, which posted 14.7 percent growth in the second quarter. The fastest increase was in the Americas region, which recorded a 19.4 percent jump.

“This is due partly to a favorable comparison basis, but also to the popularity of our stores and products. Jewelry, in particular, is doing extremely well,” said Dumas, adding that Hermès is preparing to unveil its renovated store on Rodeo Drive in Beverly Hills in September.

The leather goods and saddlery division, which accounts for nearly half of all sales, posted a gain of 6.9 percent in the second quarter, after increasing just 3.9 percent in the first three months of the year.

In silk and textiles, sales rose 7.1 percent, while ready-to-wear and fashion accessories saw revenues grow 19.9 percent. Sales in the “other sectors” segment, which includes jewelry and home wares, jumped 27.5 percent.

“Jewelry represents a growing portion of our sales, with very strong demand,” said Dumas, who formerly headed the jewelry division at Hermès.

Sales of watches eased 0.7 percent, while perfumes were up 21.5 percent, boosted by the positive reception to its new women’s perfume, Jour d’Hermès, and the continued success of men’s fragrance Terre d’Hermès.

Sales of leather goods remained capped by production capacity, something the company is addressing by building two leather goods factories in eastern France that will eventually create 400 jobs.

“We are trying to produce as much as possible, because we really don’t enjoy being unable to meet a request from a customer who may be disappointed not to find a product in our stores,” said Dumas. “Opening two new factories with more than 400 staff in France is a sign of confidence, but it also requires a real training and learning effort, which means that some of our best craftsmen will be on hand to impart their knowledge. It’s all about finding a balance between those that are experienced and those that are learning.”

The executive declined to comment on the recent decision by France’s stock market regulator, AMF, to slap a record fine on LVMH Moët Hennessy Louis Vuitton over the way it acquired a 17 percent stake in Hermès. LVMH, which is embroiled in a series of court cases with Hermès, has since raised its stake to 22.6 percent.

“The AMF’s statement spoke for itself,” Dumas said.

LVMH and Kering are due to report their second-quarter results next week.