Hermes Goes Big in Hawaii, Giving Vote of Confidence to Region

PARIS Defying expectations, Hermès International posted a 6.5 percent decline in first-quarter sales, helped by the strength of its leather goods business.

The French firm sailed past larger rivals that flagged declines in the double-digit range, percentage-wise, with the forecast-beating figures.

“Hermès stands up to its reputation and produces the strongest [first-quarter] organic growth performance of the luxury goods sector,” noted Bernstein analyst Luca Solca, citing the company’s 7.7 percent decline, at constant rates, while expectations were for a 12 percent drop.

Earlier this week, Kering reported sales over the quarter fell 15.4 percent, while LVMH Moët Hennessy Louis Vuitton last week reported a 15 percent drop.

Kering’s performance fell slightly below guidance it had issued last month as the effects of the spread of COVID-19 were beginning to emerge.

Striking a rare tone of confidence in the current, unsettled environment, Hermès said operations are gradually resuming and that it has kept a basic salary for its 15,500 employees around the world without drawing on state assistance. The company will propose a dividend — which it has slightly reduced to 4.55 euros from 5 euros — at the shareholder meeting Friday, which will be held behind closed doors, but broadcast through its web site, as has become the norm in recent weeks.

“The solidity of our craftsmanship model, the appeal of our objects, and the efforts made by all the Hermès teams are key assets that will help us confidently overcome the major uncertainties that the first period has brought,” said Axel Dumas, executive chairman of Hermès.

Sales for the quarter came to 1.5 billion euros, as COVID-19 prompted store closures across the world, bringing years of heady growth to a screeching halt, with Europe and Asia hit hardest.

Sales in leather goods, including handbags and saddles, proved most resilient, down 6 percent to 771.1 million euros. The company flagged a strong performance in some areas heading into the pandemic lockdowns, with strong momentum in January thanks to the Chinese New Year.

Ready-to-wear and accessories, as well as silk and textiles, were harder hit, down 10.6 percent and 19.2 percent, respectively, at constant rates, and the company noted these activities had seen a decline in the run-up to the store closures.

The new beauty line launch in February was “very successful,” noted Hermès, while sales of perfumes were down 3.3 percent and watches declined 6.6 percent. Offering a rare spot of growth, strength in jewelry sales helped lift the “Other Hermès Sectors” business line — which includes tableware and other home products — to a 3.9 percent increase.

The Asia region posted 814.5 million euros in sales, down 6.7 percent at constant currencies, with growth in Japan helping to mitigate the drop during the period, when stores in mainland China were closed from the end of January. Stores in China have since reopened and activity is again on the upswing, the company said.

As reported previously, the label’s flagship store in Guangzhou’s Taikoo Hui was said to have brought in the highest, single-day sales for a luxury brand in the country on a recent Saturday, with high-end shoppers documenting their shopping trip across Chinese social media like Weibo and Xiaohongshu.

In Europe, where stores have been closed since mid-March, sales were down 10 percent at constant rates to 403.5 million euros. The decline was less stark in the Americas, even if all e-commerce has been halted in the U.S. since March 20, down 6.3 percent at constant currencies, to 258.5 million euros.

Work at production and logistics sites has resumed since April 14, in compliance with safety rules and applying measures to protect employees, according to Hermès.

With stores currently open only in Greater China and South Korea, second-quarter sales will be “significantly impacted” by the temporary closure of most of its network, Hermès said.

“For 2020, the impacts of the COVID-19 epidemic are currently difficult to assess, as the scale, duration and geographic extent of the crisis evolve every day,” noted the company, which is sticking to a medium-term goal of growth at constant rates.

The company has donated 20 million euros to Paris hospitals as well as 30 tons of hand sanitizer it has been producing at a perfume site in Vaudreuil, France, and 31,000 masks.

Executive managers are waiving the increase in their fixed compensation this year, as well as the variable compensation, so salaries will be at the same level as in 2019.

“The worst is yet to come,” noted Bernstein analysts, citing the upcoming quarter. However, the better-than-expected results reinforce the analysts’ preference for a “polarized luxury portfolio,” that is, “hiding in high quality” — Hermès and LVMH — and adding selectively “high-beta names with a twist,” like Prada and Compagnie Financière Richemont.

load comments
blog comments powered by Disqus