HERMES PROFITS JUMP 33% DRIVEN BY STRONG SALES GAINS

Byline: Katherine Weisman

PARIS — Hermes International said Tuesday that net profits soared 33 percent last year to $115.6 million, compared with $86.7 million in 1998.
Operating profits at the French luxury company were $186.7 million in 1999, a gain of 21 percent. This jump was in line with Hermes consolidated sales, which rose 21 percent last year to $901.2 million, as previously reported. Dollar figures are converted from the French franc at current exchange.
Hermes chairman Jean-Louis Dumas reported that after-tax net margins reached 12.8 percent of sales last year, compared with 11.6 percent in 1998 and 10.9 percent in 1997.
Earnings surged for several reasons. Besides overall sales growth across most product categories and in all geographic markets, Dumas noted that there were strong sales increases in some of Hermes’s highest margin-producing areas. Among these were watches, where sales grew 20 percent, and shoes, which are grouped together with jewelry and home products and enjoyed a 60 percent sales gain.
Dumas also cited better management of women’s and men’s ready-to-wear, which led to higher sell-through rates. Rtw sales for both women’s and men’s rose 19 percent last year. He declined to disclose sell-throughs for women’s and men’s rtw.
The small perfume division “was significantly more profitable last year than in 1998,” a year when it barely broke even. Sales at this division, which ran a deficit through 1997, were up 5 percent last year due in part to the successful launch of the Hiris women’s fragrance, sales of which exceeded expectations. Dumas noted that existing Hermes scents such as Amazone for women or Equipage for men continue to enjoy sales growth without any advertising support.
The bottom line was also aided by non-operational factors including a lowering of corporate tax rates in Japan and France. The strength of the yen and the dollar also fueled growth and profits.
“But I want to be modest in the victory, because this year or next year, if the exchange rates drop, who knows?” said Dumas. “We succeeded last year thanks to solid management, strong sales and communication. People know that Hermes is modern and contemporary, but based still on tradition.”
Cash flow of $158.5 million allowed Hermes to pursue an aggressive investment campaign. In addition to acquiring a 35 percent stake in the house of Jean-Paul Gaultier for $22.2 million, the company also took steps to expand manufacturing capacity and retail operations. In France, Hermes created additional manufacturing capacity by opening two new factories in Seloncourt for saddlery and leather goods. Watch-making capacity grew as well with a new 38,800-square- foot building housing workshops and offices in Bienne, Switzerland.
On the retail front, the company acquired a plot of land in Seoul, South Korea, to establish a major wholly owned store there, the company said. Also, three franchised stores in Marseille, Padova and Berlin were acquired and became wholly owned units. The Milan flagship, which reopened last June, was renovated and expanded to more than 4,400 square feet. Construction began on a new flagship store in New York, which is slated for a June opening, as well as one in Tokyo, where an opening is planned for the first quarter of 2001.
This year, Hermes is continuing retail expansion and has signed an agreement to open a franchised store in Moscow, where construction is slated to begin during the second half of this year. Store openings are also planned for Lisbon, Portugal; Santiago, Chile, and for a second store in Barcelona, Spain.
Although details of last year’s earnings were not released until Tuesday, Dumas already was celebrating Monday night at a company party for international press, Hermes executives and family members to unveil the company’s annual theme, “2000: The year of new days.” Hermes’s clout became apparent as some of the most stylish fashion editors and prominent French journalists were cajoled into donning yellow-and-black bee helmets complete with antennae for the festivities, which included carnival games and an antique carousel.
“I slept well last night,” said Dumas in a phone interview Tuesday evening. Numbers aside, “last year was a great year in human terms. Creativity, which I lead, was strong, and even when I had to stop at the end of last year, the teams just forged ahead.”
Dumas was referring to an illness that led to his hospitalization for several weeks last fall.

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