PARIS — In another sign that currency headwinds are creating headaches for luxury firms, Hermès International warned Friday it expects its operating margin to take a hit after foreign exchange swings again took a chunk out of second-quarter revenues.
The luxury goods sector faces a relatively tough period as organic growth slows from Europe to Japan, analysts say.
Barclays Capital forecast in a recent report that operating margins would fall between 40 and 280 basis points in the first half due to slower like-for-like sales and the impact of foreign-exchange variations.
Hermès reported sales rose 5.8 percent in the three months ended June 30, with a negative currency impact of 73 million euros, or $100 million, during the period.
When stripping out the impact of exchange-rate variations, this represented an increase of 9.6 percent, below market expectations and the 14.7 percent increase registered in the first quarter.
The maker of Kelly bags and silk scarves said due to the negative foreign-exchange effect, operating margin for the first half of 2014 should be slightly lower than the 33.1 percent recorded during the same period last year, and closer to the historic high of 32.4 percent reached for 2013 as a whole.
Luca Solca, managing director and sector head of global luxury goods at Exane BNP Paribas, predicted a 50-basis-point contraction in first-half operating margin, adding that the consensus estimate called for a drop of 30 basis points in the full-year margin.
Hermès chief executive officer Axel Dumas warned analysts earlier this year to expect a drop in profit in 2014 in light of the strong currency headwinds, which already wiped 40 million euros, or $54.8 million, from its books in the first quarter.
The sales slowdown in the second quarter followed a 10.1 percent progression in the first quarter, and was due mainly to a deceleration in the Americas and Japan.
At constant exchange rates, turnover in Japan edged up 1.6 percent following a 21.7 percent jump in the first quarter, when consumers anticipated purchases ahead of a rise in sales tax on April 1. Sales in Asia-Pacific, excluding Japan, rose 16.8 percent in the second quarter.
The Americas advanced 7.9 percent, down from a 17.9 percent rise in the first three months of the year, while Europe registered 6 percent sales growth.
The company’s revenues in the second quarter totaled 963.4 million euros, or $1.32 billion, up from 910.4 million euros, or $1.19 billion, during the same period a year earlier. All dollar rates are calculated at average exchange for the periods to which they refer.
Sales of ready-to-wear and fashion accessories were up 12.9 percent at constant exchange rates in the second quarter, and other Hermès sectors — spanning jewelry to tableware — jumped 18.9 percent. Silk and textiles posted a 9 percent rise.
Leather goods and saddlery, including the iconic Birkin bag, registered a 10 percent increase in the quarter, while sales of perfumes rose by 10.5 percent, supported by the launches of the Jour d’Hermès Absolu and Terre d’Hermès Eau Très Fraîche fragrances.
Watch revenues dropped 12 percent as demand in China remained weak in the wake of a government anticorruption drive that has impacted sales of expensive gifts.
Among sector peers expected to report sales in the next weeks are Kering, LVMH Moët Hennessy Louis Vuitton and Swatch Group, whose ceo Nick Hayek has warned that foreign-exchange swings could dent the group’s revenues by up to 500 million Swiss francs, or $557 million at current exchange, in 2014.
@margotrobbie steps out onto the red carpet wearing @miumiu. The actress is nominated for “Outstanding Performance by a Female Actor in a Leading Role” in “I, Tonya” at the #SagAwards. (📷: Stewart Cook) #wwdfashion
For @massimogiorgetti of @msgm, the Nineties are his favorite decade. “They had a huge impact on my personal growth. What I like of the Nineties is that they are not so precise in terms of style as other decades…there was actually a bit of everything,” he said. As seen on MSGM’s Spring 2018 show: tie-dye and a bit of grunge, two styles that are synonymous with the decade #wwdfashion #wwddecades (📷: @kukukuba)
Breaking News: @hedislimane joins @celine as its new artistic, creative and image director. One of fashion’s preeminent image-makers and trendsetters, Slimane is to join the LVMH brand on Feb. 1 and unveil his first fashion proposition for men and women next September during Paris Fashion Week. It marks a major homecoming for Slimane, who cemented his reputation – and influenced men’s tailoring for more than a decade – as the designer of Dior Homme between 2000 and 2007. He went on to reinvent and ignite the house of Yves Saint Laurent, which he rechristened Saint Laurent, between 2012 and 2016 – all the while maintaining a close relationship with the Arnault family, which controls LVMH and Dior. Read the full exclusive story on WWD.com. Link in bio. #wwdnews #wwdfashion
“Personally I believe the Eighties have been the richest and more vivacious period for international fashion,” Giorgio Armani said when asked what his favorite decade of fashion is. It was a moment of disruption and experimentation and only thinking back to the first years of that decade is always an emotion for me, for what they have meant to me and my work.” The influence is clear in @giorgioarmani spring 2018 collection, pictured here, which was full of bright colors and unexpected prints. Read more about which decades designers loved most on WWD.com #wwdfashion #wwddecades (📷: @aitorrosasphoto)
For Lady Gaga’s only Italian show on her “Joanne World Tour,” the singer wore a range of @versace_official outfits. The standout piece: this custom-made bodysuit inspired by the brand’s spring 2018 collection. #wwdfashion (RG: @ladygaga)
@_camillaruth_ is expanding on the wellness-craze concept with @westbourne – a new NYC restaurant that’s both a healthy-minded café as well as a business that gives back to the community. Marcus works with the Robin Hood foundation to give back to The Door, a non-profit providing youth development services, and also hires employees through The Door. Read our full interview with Marcus on giving back through food on WWD.com. #wwdeye (📷: @lexieblacklock)