PARIS — Hermès International sounded a confident note about the health of the luxury goods industry on Thursday as it reported its operating margin reached a record level in the first six months of the year.
While the company cautioned profitability would likely wane in the second half, Hermès chief executive officer Axel Dumas signaled the market for high-end goods remains positive.
“Globally, there has been no structural shift in the trends we have seen since the beginning of the year,” he said, noting a positive underlying trend for several months despite strains on business from various current events and a stronger euro.
“We live in a volatile world,” he added, pointing out that the third quarter had seen a terrorist attack in Barcelona, the continued rise of the euro and store closures prompted by storms sweeping across Houston, St. Barts and Miami.
Compagnie Financière Richemont, Prada, LVMH Moët Hennessy Louis Vuitton and Kering have also recently flagged the euro’s strength as a drag on the industry’s recovery. Hermès shares traded lower Thursday despite the brisk first-half results.
“In the medium-term, despite growing economic, geopolitical and monetary uncertainties around the world, the group confirms an ambitious goal for revenue growth at constant exchange rates,” Hermès said in its earnings statement.
However, the company noted the results through the end of June had benefited from a non-recurring boost from foreign exchange hedging from 2016 and thus “cannot be extrapolated over the full-year 2017.”
Hermès said it is getting closer to rolling out its long-awaited new Internet site, following a soft launch in Canada this summer. The company hopes to launch the site in the United States in October, followed by Europe next year and later Asia.
“We’re trying to redo everything,” said Dumas, stressing the site was designed to perform well on mobile phones as well as computers.
“It’ll be easier, faster,” said the executive, adding that more products will be offered on the new site. He said the company focused specifically on improving the experience between adding an item to a basket and paying for it, in a push to get shoppers to complete a purchase.
“We need to try to offer the best experience possible in the store and in the digital space the most fluid way possible,” he said, noting shopping patterns online and in stores vary greatly, with some consumers checking out items before making an online purchase and others doing the opposite. Dumas characterized digital sales as doing well, saying that growth online outpaced the group average.
The maker of Birkin bags and silk scarves said recurring operating income rose 13 percent to 931 million euros, while the operating margin increased by 40 basis points to 34.3 percent, an all-time high for the period. Earnings slightly beat expectations, said Rogerio Fujimori from RBC in a client note.
Consolidated net profit totaled 605 million, representing 22.3 percent of sales.
As reported, sales were up 8.9 percent in the second quarter, down from 13.5 percent in the previous three months. Revenues in the three months to June 30 totaled 1.36 billion euros, representing a rise of 8.3 percent at constant exchange rates.
That compares with a 15 percent rise in revenues at LVMH Moët Hennessy Louis Vuitton, and a 25.4 percent increase at Kering, which saw net profit surge 77.6 percent thanks to another outstanding performance from its cash-cow brand Gucci.
Hermès highlighted brisk business in China, where it said it is drawing younger clients.
“There is real dynamism in consumption in China,” fueled by the country’s economic growth, said Dumas, noting the company has seen a shift to different types of clients in the country, including younger ones. “It’s more than just spending more at home than abroad,” he noted.
Dumas said that the Twilly perfume, popular with younger customers, was not a sign the company is prodding its designers to create products geared to a younger crowd. “We do not have a marketing team,” he said.
The company’s watches division, which represents around 3 percent of group sales, is doing well in its own store network but has not seen growth return as the brand hoped for in its wholesale distribution, according to Dumas. Hermès, which is launching its third Apple Watch series with calfskin wrist bands this month, will show at the Geneva Watch Fair next year rather than Baselworld, he added.