PARIS — Hermès International offered further evidence of robust demand for French luxury products in Asia, its fastest-growing region over the fourth quarter, even as trade tensions cast a shadow on the global economy.
While the trade war brewing between the U.S. and China has prompted concern that Chinese consumers could pull back on high-end purchases, strong end-of-year sales from Hermès added to recent evidence from luxury giant LVMH Moët Hennessy Louis Vuitton showing the sector’s resilience.
Sales at Hermès over the fourth quarter grew the fastest in Asia, excluding Japan, up 13.1 percent at constant rates to 772.7 million euros — defying expectations that consumption in that region could falter as economic uncertainty is seen chipping away at consumer confidence. The company also noted a strong performance from China, where it rolled out a web site last October.
Overall, the company clocked 10.1 percent growth, reaching 1.65 billion euros, a rate of 9.6 percent at constant rates, which slightly beating expectations.
The largest division, leather goods and saddlery grew at a rate of 9.8 percent at constant rates to 820.7 million euros. Added production capacity helped the company beat expectations, noted Rogerio Fujimori, analyst with RBC Capital Markets.
The performance “confirms to us that Hermes is well placed to deliver another good year in 2019 and the shares are well placed against a backdrop of decelerating/normalising growth for the luxury sector in 2019,” noted the Fujimori. RBC analysts forecast the leather goods category to grow at around 9 percent to 10 percent a year through 2020 at Hermès, and have applauded the company’s efforts to diversify its offer of leather handbags and reduce its reliance on Birkin and Kelly bags.
Hermès has been gradually adding new workshops and earlier this week announced plans to build another one in Normandy that will employ 250 workers. The construction of the new site follows the opening of another one in the region that opened in 2017. The Manufacture de l’Allan workshop, which opened last year, is gaining momentum, the company said.
The luxury firm, which reports results on March 20, said it expected current operating margin for 2018 to be close to 34 percent, following an “exceptional level” reached in 2017, when the figure was 34.6 percent, suggesting a slight decrease in profitability.
“In an uncertain global context, I am very pleased with the success of Hermès,” said Hermès executive chairman Axel Dumas, referring to the full-year revenue figure of 6 billion euros, in a company statement.
The ready-to-wear and fashion division, which includes shows and other fashion accessories, rose 11.7 percent at constant rates to 335.5 million, slightly lower than the full year pace of 14 percent.
The pace of watch sales quickened with a 13.9 percent rise, at constant rates, to 50.3 million euros. The company recently launched a new women’s watch, the Galop d’Hermès.
Perfumes, which offer an important entry to the high-end label and is one of the few products available outside the company’s own stores, grew 9.5 percent to 73.3 million euros. The division that includes jewelry and homeware rose at a rate of 11.2 percent, to 120.7 million euros.
In terms of geographic regions, sales in the Americas, where the company recently opened a store in Mexico City’s Artz Pedregal urban center in Mexico in December, rose 7.9 percent at constant rates to 310.7 million euros. The company cited Italy and the U.K. as driving sales in Europe, which rose 7 percent at constant rates to 536.9 million euros. Business in France grew at a pace of 4.8 percent, despite the negative impact of the yellow vest protests in Paris, which prompted the closure of its flagship store on Rue Saint Honoré on several occasions.