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

PARIS — Offering a picture of resilience against a backdrop of international trade tensions, sales at Hermès International climbed 14.7 percent in the second quarter, beating expectations.

The report comes as trade hostilities between the U.S. and China weigh on growth prospects for the global economy, with recent extradition protests in Hong Kong adding to uncertainty. Compagnie Financière Richemont, which owns luxury labels Cartier, Van Cleef & Arpels and Dunhill, last week missed revenue forecasts partly due to the disruptions in Hong Kong.

But Hermès had reassuring news for investors fretting about business in Hong Kong, noting that growth there continued at a double-digit growth rate over the second quarter, despite the closure of two stores for two half days in June, according to Éric du Halgouët, executive vice president of finance.

Commenting on the luxury firm’s performance in the first-half period, chief executive officer Axel Dumas said it proved the relevance of the brand’s “craftsmanship” model.

“Hermès sales were very dynamic,” Dumas said in a statement.

Sales for the second quarter at Hermès, famed for its Birkin handbags and silk scarves, totaled 1.67 billion euros, fueled by a strong performance in Asia and with an extra lift from currency rates. The revenues were in line with trends of the previous quarter, the company said.

Hermès noted that current operating profitability will likely be slightly below the record level of 34.5 percent that the company reached in the first half of the previous year, with exchange rate hedges unfavorably impacting the period.

“All in all, another rock solid quarter for Hermès,” said Rogerio Fujimori, analyst with RBC. The analyst noted margin guidance was “broadly in line” with expectations, but that the second-quarter organic sales growth slightly beat expectations.

Fujimori raised his target price on Hermès shares to 615 euros from 550 euros, noting the company remains “a master of its own destiny in leather goods,” while also enjoying “exceptional momentum” in its ready-to-wear and accessories activity, thanks to a combination of timelessness, modernity, consistent growth and high profitability.

Following an analyst call with the company, Fujimori said to expect more reinvestment from the luxury brand over the second half, including in communication, employee bonuses and in preparation for its beauty launch next year. He also said profitability from the rtw division should be similar to the group average and noted that the performance in France has steady improved as the yellow vest protests subsided.

Luca Solca, analyst with Bernstein, noted the “solid organic growth” was likely already reflected in the share price.

Shares traded up 0.2 percent to 645.60 euros on the Paris Stock Exchange in Tuesday afternoon trading.

Revenues for the quarter were up 12.3 percent at constant rates, with particularly brisk growth in Asia, up 16.5 percent, dwarfing other regions with sales of 839.9 million euros. The group flagged positive momentum in mainland China, along with double-digit growth in all countries of the region, pointing to recent store openings in Shanghai, Singapore and Thailand. At the end of this month, the company will add a store in Xiamen, on China’s southern coast.

Hermès is also rolling out its digital platform in the area, with Singapore up next, slated for the end of the year, following Japan in June.

In Europe, revenues rose 7.3 percent at constant rates, reaching 504 million euros, with improving sales in France and store renovations in Amsterdam and Moscow. The firm has been expanding in the Americas region, adding a store in New York’s Meatpacking District and renovating its Waikiki boutique.

In terms of activities, Hermès singled out the rtw and fashion accessories division as performing particularly well, with a 16.9 percent rise at constant rates, to reach 394.4 million euros, while the company’s largest division, leather goods and saddlery, posted 12.2 percent growth to reach 844.2 million euros.

Demand remains high for the company’s classic handbags as well as other models like the trim, round-bottomed Mosaïque purse, and soft, rectangular, satchel-like 24/24 bag, said Hermès, noting ongoing production increases, with the June kickoff of works to build the Maroquinerie de Guyenne workshop and plans to open another one in Louviers, France, by 2021.

The jewelry and home products business, which includes tableware — a sector that is seeing a revival, spurred on by consumers dressing up their tables for social media — grew 20.8 percent, while silk and textiles was up 5.8 percent. While silk has lagged other divisions lately, the company continues to invest in the activity and is expanding its Pierre-Bénite site in the Rhône region of France to add two new printing lines.

The perfumes business — which, along with watches, is one of the few Hermès products that can be bought outside the company’s own store network — clocked 3.5 percent growth, driven by Terre d’Hermès and Un Jardin sur la Lagune. The company pointed to a high comparison base, as last year’s launches over the same time of year included Twilly, a perfume geared to younger consumers.

Hermès said its watches division, which posted 7.6 percent growth, is getting a boost from the Galop d’Hermès watch, a stirrup-shaped style that comes with colorful, leather wristbands and was designed by Ini Archibong — who is best known for his curvy, modern furniture and lighting designs.

The company continues to stick to its outlook for revenue growth in the medium term.

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