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Hermès Q4 Sales Soar 22.5%

The French luxury brand expects to post a record operating margin in 2012.

PARIS — Hermès International said Tuesday it expected to post a record operating margin in 2012 after comfortably beating its target for annual sales growth, thanks to a surge in revenues in the fourth quarter.

This story first appeared in the February 13, 2013 issue of WWD.  Subscribe Today.

The maker of Birkin bags and silk scarves said sales totaled 1.04 billion euros, or $1.35 billion, in the fourth quarter, up 22.5 percent versus 2011. This represented a rise of 18.5 percent at constant exchange rates.

“The Hermès business is in excellent health,” chief executive officer Patrick Thomas told WWD.

“What we do is perfectly in sync with the aspirations of consumers, first in Europe and the United States, now also in China, since more and more Chinese consumers are looking for discretion and quality objects for pleasurable living, rather than the ostentatious luxury that symbolized the early days of luxury,” he added.

Hermès reported revenues for 2012 as a whole rose 22.6 percent to 3.48 billion euros, or $4.48 billion. Stripping out currency fluctuations, sales were up 16.4 percent, exceeding the company’s most recent target of 13 percent consolidated annual sales growth.

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The French luxury goods firm is scheduled to report full-year earnings on March 21.

“For the full year, given the excellent performance in the fourth quarter, the operating margin is expected to be slightly above the all-time high achieved in 2011,” it stated, referring to last year’s record operating margin of 31.2 percent.

Hermès plans to pay an interim dividend of 1.50 euros, or $1.98, a share on March 1.

The results came on the heels of figures showing sales at LVMH Moët Hennessy Louis Vuitton rose 12 percent in the fourth quarter, while revenues at Burberry climbed 11.3 percent in the three months to Dec. 31. PPR is due to publish full-year results Friday.

While competitors reported flagging demand in China, Hermès said sales in Greater China rose 34 percent in the fourth quarter and were up 28 percent in 2012 as a whole. China now accounts for 21 percent of its overall revenues, versus 19 percent a year ago.

All geographic regions and sectors contributed to fourth-quarter growth. Revenues in the Asia-Pacific region, excluding Japan, were up 29.7 percent at constant exchange rates, with Japan rising 15.1 percent, Europe gaining 11.6 percent and the Americas up 20.8 percent.

Sales of leather goods and saddlery, which account for almost half the brand’s revenues, were up 14.8 percent at constant exchange rates. Ready-to-wear and fashion accessories posted a 25.5 percent rise, silk and textiles were up 18.9 percent, perfumes rose 19 percent and watches recorded a 20.2 percent increase.

Sales in the “other Hermès sectors” division, which groups jewelry and home wares, were up 32.2 percent, boosted in part by Pierre Hardy’s second fine jewelry collection for the house, which featured precious miniature renditions of the famed Kelly and Birkin bags.

Hermès added two stores to its network in 2012 — in Taiwan and China — and renovated or expanded another six.

In 2013, it plans to open just one new store, in Ningbo, China, and renovate another 11, including Hermès China World in Beijing and the Hermès flagship in Milan, which will be relocated from Via Sant’Andrea to Via Montenapoleone, Thomas said.

Hermès will also open a store in Paris for its Chinese luxury brand, Shang Xia, its first outside of China. Initially scheduled to launch at the end of 2012, the boutique is now expected to open in September.

“The store has been in the works for a year, but since the demand in our stores in China — in Beijing and Shanghai — was stronger than we expected, and the supply chain is far from being completely secure, we preferred to defer the opening a little rather than having a store with too little merchandise,” Thomas said.

Despite all these positive indicators, the executive said Hermès was sticking to its long-term forecast of 10 percent annual sales growth in 2013.

While currency fluctuations have worked in the company’s favor for the last three years, generating a positive impact of 178 million euros, or $228.9 million, on 2012 sales, the trend will likely be reversed this year, he noted.

“The strong euro is not going to help us. Secondly, the economic outlook in France and the rest of Europe is not very bright. So we have to be cautious,” Thomas explained.

Thomas said the euro was “still slightly overvalued,” but added it was difficult to determine an optimal level for the currency, which was trading at $1.32 and at 113.5 Japanese yen on Tuesday.

“A strong European currency is a good thing, as it reflects the strength of the European economy and it means the currency is well managed. I think the European Central Bank is doing what it needs to keep the euro strong. Now it must not become too strong, so there is a balance to be found,” he said.

Shares in Hermès International closed up 1.5 percent at 248.65 euros, or $328.60, on the Paris Stock Exchange.