Hermès Constance bag

PARIS — Luxury is bouncing back, with an acceleration in third-quarter sales at Hermès International the latest signal of an improving sector.

Revenues at the French maker of Birkin bags gained 9.9 percent in the three months ended Sept. 30 to 1.26 billion euros, or $1.4 billion at average exchange rates for the period in question. At constant exchange rates, the improvement stood at 8.8 percent, versus consensus expectations of 7 percent.

This compared with organic growth of 8.1 percent in the second quarter and 6.2 percent in the first three months of the year. The Hermès sales echo positive figures from luxury giants Kering and LVMH Moët Hennessy Louis Vuitton, which also trumpeted faster growth in the third quarter.

“Many of the psychological catalysts which dampened luxury demand — starting with the yuan deterioration in August 2015 and including attacks in Paris in November 2015 — have now been shrugged off,” HSBC’s Erwan Rambourg and Antoine Belge wrote in a report earlier this week, the latest analysts to call a return to a bull market in luxury.

“Every market, with the possible exception of Japan, is doing better or in line with previous trends. After the U.S. election and once we pass the one-year mark after the Paris attacks, these trends could get even better,” they added.

But Hermès maintained its cautious outlook for the full year, reiterating that it expects sales growth at constant exchange rates to be below 8 percent. On that basis, sales grew 7.7 percent in the first nine months of the year, up from 7.4 percent during the same period a year earlier.

It expects operating profitability to be slightly higher than the 31.8 percent recorded in 2015, thanks to the positive impact of foreign exchange hedging contracted last year. Currency fluctuations dented revenues by 11 million euros, or $12.3 million, in the first nine months of the year.

In September, Hermès announced that from next year, it would no longer provide an annual sales growth forecast due to increasing volatility.

The luxury firm said even beleaguered Japan registered organic growth of 5.6 percent in the third quarter, with virtually all other geographic regions progressing as sustained demand for its leather handbags compensated for the lackluster performance of its clothing lines, accessories and silk scarves.

“In a more adverse context, growth over the first nine months of the year was driven by the success of leather goods and saddlery which confirmed its role as the mainstay of the group,” it said.

France was down 0.9 percent as tourism continued to struggle in the wake of last year’s terrorist attacks, but Europe as a whole posted a 5.2 percent sales increase. Asia-Pacific, excluding Japan, gained 14.2 percent as sales in continental China continued to rise, despite a challenging context in Hong Kong and Macao. Revenues in the Americas were up 7.3 percent.

Sales of leather goods and saddlery rose 16.3 percent at constant exchange rates, driven by the continued success of handbags including the Birkin, Kelly, Constance, Halzan and Lindy. Hermès has been increasing output to meet demand for its bags, which often generate months-long waiting lists.

But ready-to-wear and accessories were virtually flat, with revenues rising just 0.1 percent, while silk and textiles continued to struggle, with a 4.1 percent decline in the third quarter.

Sales of perfumes rose 10.2 percent, thanks in part to the launch of Galop d’Hermès. Watch sales rose 0.4 percent, while the other Hermès sectors group — which includes jewelry and home products — was up 4.4 percent.

Rogerio Fujimori, analyst at RBC Capital Markets, said the figures were “reassuring,” noting that even though the company’s guidance for 2016 implied a slowdown in the fourth quarter, this was probably due to an anticipated slowdown in the supply of leather goods into its stores.

“And we know management has always guided conservatively (under-promise and over-deliver), so we see sales risks skewed to the upside given improving sector trends in Asia and easier comparatives in France,” he said.

“In a difficult external environment, Hermès’ growth differentials versus aspirational brands tend to widen and Hermès’ leather goods resilience tends to stand out,” Fujimori added.

Luca Solca, managing director at Exane BNP Paribas, cautioned that Hermès was taking a risk by tinkering with its previous policy of confining its handbags to high-end price ranges only.

“The choice to push more accessible handbags is a step away from ‘category segregation’ that has served Hermès well for many years, and potentially increases brand trivialization risk one notch,” he said.

The global luxury market is expected to grow 4 percent at constant exchange rates in 2016, despite geopolitical uncertainty, according to the latest estimates from Bain & Co. and Fondazione Altagamma.

But sales of personal luxury goods have dropped 1 percent to 249 billion euros, or $273.9 billion, compared with 2015. Personal luxury goods are forecast to grow 3 percent at constant rates in 2017.

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