While its luxury peers roll out hefty price increases on iconic handbags, Hermès International has blinders on.
“We don’t follow what others are doing,” executive chairman Alex Dumas said Friday after reporting “exceptional” growth in 2021 that pushed the company close to 9 billion euros in revenues.
“We do not intend to use prices as a way of ratcheting up further growth,” he told a webcast with analysts. “Our price is the genuine price. There’s a real rapport of trust between us and our customers, and I wouldn’t want to put that in jeopardy.”
Dumas took pains to explain that price increases at Hermès — which are likely to amount to 3.5 percent in 2022 — largely reflect the rising costs of manufacturing.
“All of our métiers have done well, regardless of price positioning,” he noted, citing brisk sale of furniture and high jewelry at the top end of the spectrum. “In 2021, all indicators were positive.”
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Revenues in the fourth quarter climbed 11 percent versus a year ago, and 28.4 percent ahead of 2019, to 2.38 billion euros.
For the full year, the French maker of status handbags and silk scarves saw revenues jump 41.8 percent compared to 2021 and 33.4 percent compared to 2019, further confirming the buoyancy of the sector.
Net profit leaped 76.5 percent to 2.45 billion euros, while recurring operated income soared 78.2 percent to 3.53 billion euros. Operating income was boosted by 91 million euros from the partial divestiture of Chinese luxury brand Shang Xia, Eric du Halgouët, executive vice president of finance, noted.
The company touted “remarkable sell-through” of its collections and a recurring operating margin of 39.3 percent, up 8 points versus 2020 and 5 points compared to 2019.
Analysts grilled Dumas and du Halgouët for clues about margin evolution in 2022, with the latter detailing increased communication expenses and an “accelerated capex” to support store expansion. New boutiques are slated to open this year in Saint Petersburg, Strasbourg, Barcelona, Doha, Wuhan, Shanghai, Austin, Texas, and New York City, at 706 Madison Avenue.
Dumas ultimately concluded: “Margin is the result of work well done.”
Still, investors were spooked by a 5.4 percent dip in fourth-quarter revenues in leather goods and saddlery, which Hermès blamed on production constraints and depleted inventories.
During the call, Dumas declined to give specific indicators if the momentum last year continued into early 2022, offering: “Globally, I don’t see a change in trend.”
As for production capacity at its 52 sites in France, he is forecasting a 6 to 7 percent increase in 2022. Last year, the brand cited “very sustained” interest in its classic handbags, and demand for new bags like the Della Cavalleria and the 24/24 with its twist closure.
Dumas noted it takes an artisan roughly 15 hours to realize one handbag, and the brand won’t compromise on its painstaking production methods.
“We always try to please the customer, and we want to do that with the most beautiful object possible,” he said, noting that Hermès crafts silver jewelry with methods typically reserved for gold.
The company reported the most dynamic growth in Asia and the Americas, where revenues vaulted 54.1 percent and 24.4 percent, respectively, in 2021 versus 2019.
Dumas attributed a dip in sales momentum in the Americas in the fourth quarter, to 10.3 percent, to December store closures in the wake of the Omicron wave. “I’m not worried about the U.S. — no break in the trend,” he added.
Hermès highlighted “the sustained performance in Greater China, Australia and Singapore” for the strong Asia tallies, which exclude Japan. Last year, the company unveiled new boutiques in Macau and Shenzhen, and renovated and expanded units in Shanghai’s Plaza 66, Beijing’s China World and locations in Suzhou and Nigbo.
Revenues in Japan gained 20.2 percent in 2021 versus 2019.
Echoing other luxury players, the company reported improvements in Europe in the latter half of 2021.
“Local customers very much enabled us to offset the drop in tourism in Europe broadly,” Dumas said.
He also noted that 78 percent of customers on its online store were new to the brand.
Sales in Europe, excluding France, rose 9.8 percent for the full year versus 2019 and 17.6 percent in the fourth quarter. France also improved, recording a 2.7 percent gain for the fourth quarter versus a dip of 3.4 percent for the full year.
By product sector for the full-year versus 2019, watches rose 76.6 percent, ready-to-wear and accessories 44.3 percent, leather goods and saddlery 22.8 percent, perfume and beauty 18.9 percent and silk and textiles 15.3 percent.
“In the medium-term, despite the economic, geopolitical and monetary uncertainties around the world, the group confirms an ambitious goal for revenue growth at constant exchange rates,” Hermès said.
The company said it would pay its nearly 18,000 employees a 3,000-euro bonus “to reward them for their engagement and their contribution to the results in a challenging context.”
The Hermès results confirm heady times for Europe’s luxury giants.
Fourth-quarter revenues at LVMH Moët Hennessy Louis Vuitton totaled 20 billion euros, up 22 percent in organic terms versus 2019, with the fashion and leather goods division logging organic growth of 51 percent, reflecting the strength of marquee brands Louis Vuitton and Dior.
Aided by an improving picture at Gucci, Kering reported a 31.9 percent jump in revenues in the fourth quarter, a 25 percent improvement over 2019.
Compagnie Financière Richemont reported that revenues in the three months to Dec. 31 jumped 38 percent at constant currency rates versus the same period two years earlier.
Seizing on its pricing power and high consumer confidence, Louis Vuitton is hiking prices of some bags by between 10 and 20 percent to reflect rising production, raw material and transportation costs, as reported.
Analysts applauded the move as a positive indicator of the health of the sector.
Chanel, Dior and Celine also recently raised prices of some of their signature leather bags.
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