Hermès Sales Up 10.3% in Q1

The French luxury brand maintained its target increase in revenues even as sales growth in the first quarter slipped to its slowest pace since 2008.

PARIS — Hermès International chief executive officer Patrick Thomas on Monday maintained his target of a 10 percent increase in revenues this year even as the luxury firm saw sales growth in the first quarter slip to its slowest pace since 2008.

This story first appeared in the April 23, 2013 issue of WWD.  Subscribe Today.

The maker of Kelly bags and silk scarves said sales in the three months ended March 31 totaled 856.8 million euros, or $1.13 billion, up from 776.9 million euros, or $1.02 billion, during the same period a year earlier.

This represented a rise of 10.3 percent in reported terms and an increase of 12.8 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.

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First-quarter revenues exceeded consensus market expectations, but the increase was the smallest since the fourth quarter of 2008, when sales rose 6.2 percent in reported terms. Hermès shares closed up 1.1 percent Monday at 251.55 euros, or $335.51, on the Paris stock exchange.

“Overall, demand has remained stable in all countries worldwide, including China, with growth at constant exchange rates in line with previous quarters, except for watches, which posted a slight decrease,” Thomas told WWD.

He predicted Hermès would post annual growth at constant exchange rates of 10 percent or slightly above — in line with its long-term forecasts.

“With currency fluctuations, fiscal announcements and all that bedlam, it’s very hard to plan ahead. Everything is changing constantly, so we have to navigate by sight now,” Thomas added.

Revenue growth in the first quarter was dragged down by the leather goods and saddlery division, which accounted for 43 percent of sales during the period. It posted a sales rise of just 3.9 percent, versus an 18.3 percent jump in the first three months of 2012.

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“There has been a slight delay in our deliveries of leather goods, but we expect the division to end the year with nine to 10 percent growth. These are apparent fluctuations, but they in no way reflect any decrease in demand, given that in leather goods, we immediately sell everything we produce,” Thomas noted.

Hermès said it expected leather goods production capacity to “increase steadily” over the course of the year as output from two workshops opened in 2012 comes on stream.

Hermès Cuirs Précieux, its tannery division, said in January that it had acquired French calf leather specialist Tannerie d’Annonay for an undisclosed sum as part of its ongoing policy of integrating suppliers.

“For the moment, we have no plans for any further acquisitions in the leather goods division. Something might come up, but nothing significant,” said Thomas.

In silks and textiles, the company is already reaping the benefits of an expansion in factory space last year. The segment posted a sales increase of 13.4 percent, while ready-to-wear and fashion accessories saw revenues grow 16.3 percent during the three-month period.

Sales of watches fell 7.1 percent, compared with a 33.1 percent rise in the first quarter of 2012, reflecting a slowdown in the key Chinese market, where high inventories have dampened wholesale demand for luxury timepieces.

Hermès said Friday it had increased its share in the capital of Joseph Erard Holding and now owns a majority stake in the Swiss watch-case maker through its watchmaking subsidiary, La Montre Hermès.

Thomas said Hermès could likewise increase its share in its movement manufacturer Vaucher from the current 25 percent stake. “It is not planned at this stage, but it might happen someday,” he said.

Perfumes posted a 17.6 percent jump, supported by the launch of the new women’s fragrance Jour d’Hermès, which the brand said was greeted with “very promising enthusiasm.”

Thomas said that despite the poor performance of watches, sales in Mainland China remained robust, jumping 24 percent in the first quarter.

The Asia-Pacific region, excluding Japan, saw revenues increase 17.7 percent, but Japan posted an 8 percent sales drop in reported terms. Stripping out the impact of the yen’s sharp depreciation during the period, sales in Japan were up 7 percent.

“We are seeing far fewer Japanese customers in our stores in the West, in tourist destinations and in airports. They have been replaced by Chinese travelers, and are buying more at home,” he said.

The Hermès results came on the heels of figures from luxury conglomerate LVMH Moët Hennessy Louis Vuitton, which last week reported its revenues rose 5.5 percent in the first quarter as demand from Asia lost steam. Kering, the group previously known as PPR, is due to publish its first-quarter results on Thursday.

Unlike LVMH, Hermès has not increased prices in Japan to compensate for the weak yen. Thanks to its foreign exchange hedges, it has managed to limit price increases this year to the euro zone, which saw an increase of 4 percent on Jan. 1, Thomas noted.

In spite of the sticker shock, sales in France were up 11.6 percent, while the rest of Europe recorded 11.7 percent growth. Revenues in the Americas increased 10.3 percent.

Thomas declined to comment on LVMH chairman and ceo Bernard Arnault’s statement last week that he amassed an initial 17.1 percent stake in Hermès “unexpectedly” as a result of investing in cash-settled equity swaps. LVMH has since increased its holding to 22.6 percent, but has insisted its intentions are peaceful.

The sanctions commission of France’s stock market regulator AMF is due to examine on May 31 whether LVMH respected market rules. It is expected to publish its ruling this summer, capping an investigation launched in November 2010. Meanwhile, Hermès and LVMH are also battling out the issue in court.

Thomas said he remained “extremely confident” concerning the outcome of both investigations. “The AMF and judicial authorities have all the elements at their disposal. It’s up to them to take their decision,” he said.