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Hermès to Push RTW, Watches, Jewelry

The Birkin could take a backseat to fashion this year as the fashion firm plans to up other fast-growing categories.

PARIS — The Birkin could take a backseat to fashion this year: Hermès International plans to up such fast-growing categories as jewelry, ready-to-wear, shoes and belts.

This story first appeared in the March 21, 2014 issue of WWD.  Subscribe Today.

So says chief executive officer Axel Dumas, who presented the French firm’s full-year results on Thursday, headlined by a record operating margin of 32.4 percent last year, a 0.3-point improvement over 2012 that was lifted partly by deft currency hedging.

Net income in 2013 rose by 6.8 percent to 790 million euros, or $1.05 billion, reflecting higher taxation, particularly in France.

Revenues last year rose 7.8 percent to 3.75 billion euros, or $4.99 billion, as reported.

Dollar figures are converted from euros at average exchange for the 12-month period ended Dec. 31.

Hermès reported operating income rose 8.9 percent to 1.21 billion euros, or $1.62 billion, leaving it with a cash pile that reached a historic high of 1 billion euros, or $1.36 billion.

“We may have a billion in cash, but we’re not Apple yet,” Dumas remarked to a round of chuckles among the analysts assembled at the company’s headquarters on the Rue du Faubourg Saint-Honoré here.

Sounding sanguine, Dumas voiced confidence for 2014, tinged with caution, echoing the stance of the previous ceo, Patrick Thomas, who retired earlier this year.

Dumas warned analysts to expect a drop in profit in 2014 given strong currency headwinds, particularly in Japan, where a declining yen prompted Hermès to raise prices by 10 percent on Feb. 17. A hike in value-added tax in the island nation, scheduled for April, is likely to further dampen demand.

The ceo sounded more bullish on China, saying consumers there are turning increasingly toward high-quality products whose appeal derives from elite craftsmanship, rather than logos. In addition, more women are shopping for luxury goods in China, and the clampdown on bribes and gifting there is a “fight against corruption, not luxury goods,” he said. Dumas noted that watches and liquors are hardest hit, along with brands associated with gifts, of which Hermès is not one.

“We haven’t seen any real impact on our financials in China,” he said.

In September, the company plans to open its Hermès Maison in Shanghai, only the fifth unit in the world with its own dedicated building and a complete product offering and cultural attractions under one roof. (The others are in New York, Tokyo, Seoul and Paris.) Hermès is also plotting a new unit in Beijing, and an expanded location in Chengdu.

In total, the company plans to open six stores this year, and renovate and enlarge 14 more.

“The idea is to increase the penetration with local customers,” Dumas explained.

He waved off a question about the brand’s Russian clientele, given the political crisis there and in Ukraine, noting the nationality accounts for “well below 5 percent” of the firm’s business, and Russians tend to shop mainly abroad.

Despite morose economic conditions in Europe, Dumas said that all countries have expanded their local clienteles with the exception of Spain and Greece.

The company provided no specific earnings or sales guidance for 2014, vowing to “reinvent itself and push the limits of excellence.”

In a research note, Bernstein Research analyst Mario Ortelli called the earnings underwhelming and said that, still, “we expect Hermès to deliver resilient revenue growth and maintain top-notch EBIT [earnings before interest and taxes] margins and ROIC [return on invested capital] thanks to its strong brand positioning at the top of the ‘exclusive’ niche.”

He cautioned that the stock price is bound to recede as its current pricing reflects an “M&A premium” fanned by the accumulation of a 23.1 percent stake by rival LVMH Moët Hennessy Louis Vuitton.