Hermès Constance bag

PARIS — Hermès International on Thursday reported better-than-expected revenues in the first quarter, adding to mounting evidence of a recovery in the luxury goods sector, thanks to a pick up in Asian demand.

Hermès said revenues rose 13.5 percent in the three months to March 31, putting the maker of Birkin bags and silk scarves in the rare position of trailing its main French rivals. In addition, it warned that growth could slow later in the year.

“Growth at the end of March, which benefits from a favorable comparison basis, cannot be projected over the full year 2017,” Hermès said in a statement.

Hermès shares closed up 1.1 percent at 437.55 euros, or $475.49, on the Paris Stock Exchange, but the stock is still down 4.5 percent since the start of the week, having fallen sharply on Tuesday’s news that LVMH Moët Hennessy Louis Vuitton planned to get rid of its remaining Hermès shares to buy Christian Dior.

The move put to rest any lingering speculation that LVMH chairman and chief executive officer Bernard Arnault was plotting an eventual takeover of Hermès, after triggering a protracted battle with the rival luxury firm with his stealthy acquisition of a 17.1 percent stake in 2010.

Groupe Arnault, the investment firm controlled by the Arnault family, still owns 8.4 percent of Hermès International’s capital, worth around four billion euros, or $4.3 billion. Analysts expect the sale to put pressure on the Hermès stock price.

First-quarter sales at Hermès totaled 1.35 billion euros, or $1.44 billion, representing a rise of 11.2 percent at constant exchange rates.

The figures come on the heels of a 15 percent rise in revenues at LVMH, its strongest quarterly growth in five years. Kering, meanwhile, reported a 31.2 percent jump in sales during the period, with its cash-cow Gucci brand posting its strongest revenue increase in 20 years.

Luca Solca, head of the luxury goods division at Exane BNP Paribas, said the organic sales rise at Hermès was above a consensus forecast of 8.8 percent. “This looks like a ‘normal’ beat,” he said, noting that both Kering and LVMH had topped consensus expectations by a wider margin.

“We continue to perceive a disconnect between Hermès organic growth performance and prospects and the premium it commands versus the sector. We see less of a reason for that, now that a future M&A speculative angle is removed,” Solca said.

Hermès said sales in its stores grew 13 percent at constant exchange rates, with all geographic areas registering good organic progressions. The group, which no longer gives precise annual sales growth forecasts, confirmed its “ambitious” goal for revenue growth at constant exchange rates in the medium term.

Revenues in Asia excluding Japan rose 16.1 percent at constant exchange rates, reflecting a “positive trend” in continental China and a better economic environment in beleaguered Hong Kong and Macau, Hermès said.

Japan registered organic sales growth of 1.7 percent thanks to its selective distribution network, despite a stronger yen and a high comparison basis.

Revenues increased 14 percent in the Americas, despite an uncertain economic environment, and 9.2 percent in Europe excluding France, boosted by recent openings and renovations in Rome, London and Munich. Sales growth slowed in France to 4.4 percent from 5.2 percent in the fourth quarter of 2016.

Revenue growth was again driven by leather goods and saddlery, up 15 percent at constant exchange rates, fueled by the success of the Constance, Verrou, Halzan and Lindy bags alongside its classic Birkin and Kelly models. This follows a 14 percent jump in organic sales of leather goods and saddlery in 2016.

Rogerio Fujimori, analyst at RBC Capital markets, deemed the performance “remarkable,” noting that unlike many peers benefiting from easy first-quarter comparatives, Hermès was being judged against three consecutive years of exceptional first-quarter growth in leather goods.

“So this Q1 [first-quarter] update means that Hermès remains firmly among the sector winners that are taking significant market share, especially in handbags. This should be even more evident in the second half of the year, we believe,” he said in a research report.

Hermès said the pace of handbag deliveries was “sustained” at the start of the year. The French luxury firm has been steadily ramping up its capacity and now has 15 plants in France, most of which employ between 250 and 300 people. It is investing in an additional site in the Franche-Comté region.

The rapid growth in leather goods has prompted some analysts to question whether Hermès is forsaking its tradition of drip-feeding its products to customers willing to wait months for a Birkin or Kelly bag.

“There is no change in strategy,” Hermès ceo Axel Dumas said last month. “We expect in 2017 a growth rate that is normal; 2016 was exceptional — all the stars aligned.”

Silk and textiles maintained their momentum, posting growth of 8.5 percent in the first quarter. Ready-to-wear and fashion accessories were up 8.0 percent and perfumes rose 18.5 percent, fueled by the launch of Eau des Merveilles Bleue and Galop d’Hermès.

Other Hermès sectors, encompassing jewelry and home wares, registered a 16.8 percent increase.

Watches fell 5.9 percent as conditions for the sector remained tough, particularly in Asia. And other products — including the group’s other brands John Lobb, Saint-Louis, Puiforcat and Shang Xia — were down 11.9 percent during the period.

Hermès opened revamped stores in London and Munich in March and plans to unveil new boutiques in São Paulo; Istanbul, and Changsha, China, this year.

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