PARIS — Tourists are shunning Paris in favor of Milan and London for their luxury shopping excursions.
So said Axel Dumas, chief executive officer of Hermès International as he reported a 13 percent leap in net profits in the fist half – and an all-time high in its operating margin of 33.9 percent of sales, 1.4 points more compared to the year-ago half.
Dumas also attributed the “dynamism” in the U.K. to the devaluation of the pound in the wake of the Brexit vote. Germany, by contrast, “is a little more difficult.”
The executive was addressing analysts and journalists at the company’s headquarters above its Rue du Faubourg Saint-Honoré flagship, where lines of Chinese tourists snaked down the block ahead of the 10 a.m. opening.
He declined to pinpoint sales trends in July and August, but suggested the greater momentum in the second quarter would continue into the third.
“I’m optimistic enough that we can outperform the market,” he said.
Still, shares in Hermès sank 6.7 percent in mid-morning trading as investors frowned on the lack of a clear sales forecast, taking it as a sign of further gloom for the luxury sector.
Hermès would only say it had “an ambitious goal for sales growth at constant exchange rates.”
Previously, it had set a medium-term goal of around 8 percent revenue growth at constant exchange rates.
“The group will no longer communicate any quantified goal due to the reinforcement of economic, geopolitical and monetary uncertainties around the world,” Hermès said.
Asked to provide color on various regions, Dumas said Mainland China continues to progress strongly, in contrast to Hong Kong, “which remains complex, and Macau, which is difficult.”
Echoing other luxury players, he characterized business in the United States as “complex,” highlighting the “difficult retail environment” and the impact of a strong dollar, which is curbing tourist flows.
He said Hermès is benefiting from renovations of its Dallas and Houston boutiques, for example.
But don’t expect the luxury firm to jump on the see-now, buy-now bandwagon which has become a defining feature of New York Fashion Week. Dumas characterized that tactic as one designed for “short-term economic gain,” suggesting there are better ways to “make your clients dream.”
Sounding sanguine, Dumas stressed that Hermès would not engage in “price marketing” and would continue to hedge its bets on creative products made with exceptional savoir-faire.
Addressing reports that the company is considering an imminent foray into beauty products, Dumas would only acknowledge a “reflection” on the cosmetics and makeup categories, stressing the brand would not make any move before two or three years — or none at all, suggesting the focus is to first find a feminine fragrance “pillar” to rival Terre d’Hermès, ranked No. 2 among men’s fragrances in many markets. He noted that Hermès has yet to enter the eyewear business, underlining its wish to take a singular approach and safeguard quality standards.
Thanks partly to favorable currency hedging, Hermès International saw first-half net income leap 13 percent to 545 million euros, or $608.2 million.
In its outlook statement, the company said its operating margin should remain “slightly higher than in 2015,” without quantifying it.
Operating profits in the six months to June 30 improved 11 percent to 827 million euros, or $922.8 million.
Dollar figures are converted from euros at average exchange rates.
Hermès had previously released sales data for the first half, registering a 6.2 percent revenue gain in the second quarter to 1.25 billion euros, or $1.39 billion.
It cited solid momentum in Japan, France and the Americas, with leather goods its powerhouse category, driven by newer models such as the Constance, Halzan and Lindy bags, in addition to its stalwart Birkin and Kelly models.
He noted production capacity for leather goods is set to grow 8 percent as the company hires and trains more artisans, and adds more production facilities.