PARIS — Hermès International will pay an exceptional dividend this year after posting record profits in 2014, but the maker of Birkin bags and silk scarves is maintaining a more cautious outlook for 2015 in light of continued economic turmoil and political instability worldwide.
Hermès reported that consolidated net income rose 8.7 percent to 859 million euros, or $1.14 billion.
Its operating profit increased 6.7 percent to 1.3 billion euros, or $1.73 billion, with an operating margin of 31.5 percent, in line with its previous guidance of around 31 percent. This was below the historic high of 32.4 percent reached in 2013, due to the negative impact of currency fluctuations.
Annual sales totaled 4.12 billion euros, or $5.47 billion, up 9.7 percent when adjusted for the negative impact of currencies, mainly the weak Japanese yen. Currency fluctuations shaved 52 million euros, or $69 million, from the revenue total.
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The French luxury firm will propose a dividend of 2.95 euros a share, or $3.23 at current exchange, at its general meeting on June 2, in addition to an exceptional dividend of 5 euros, or $5.47, a share.
Hermès last month lowered long-term guidance despite reporting an 11.1 percent increase in revenues in 2014, above its previous target of annual growth of 10 percent at constant exchange rates.
Last year marked the first time that Hermès has crossed the threshold of 4 billion euros in revenues. It said it was aiming for a sales increase of 8 percent at constant exchange rates in 2015, citing “economic, geopolitical and monetary uncertainties around the world.”
Axel Dumas, the luxury group’s chief executive officer, explained that the revised objective was a consequence of higher revenues.
“This is a medium-term objective for us, given that we had a threshold effect,” he said.
“The overall rhythm of progression is not slowing down, but we felt this was a fair target, as it should lead us ultimately to revenues of 6 billion euros by 2020,” Dumas told a meeting of analysts and journalists at the brand’s headquarters on Rue du Faubourg Saint-Honoré here.
The executive said that the trends seen in 2014 continued into the first two months of the year, with strong progressions in Japan and the United States counterbalanced by ongoing pro-democracy street protests in Hong Kong, which weighed on sales there and in neighboring Macau.
He said sales in continental China and Taiwan grew at a double-digit pace in 2014, even though prices are roughly 40 percent higher than in the euro zone. Hong Kong and Macau posted a single-digit increase during the period.
He said the weak euro would contribute to an increase in Chinese tourists in Europe, noting that they were also traveling more within Asia, with favored destinations including Japan, South Korea, Singapore and Taiwan. Conversely, Russians are spending less abroad and more domestically, he added.
Nonetheless, Hermès is not ready to tweak prices to rectify the imbalance, as Chanel is doing by raising its prices in Europe and slashing them in Asia.
“For the moment, we have not decided either to raise or lower prices. We will look into this perhaps toward the middle of the year or 2016,” said Dumas, noting that Hermès is hedged against currency swings this year.
“We have a very strong French and European clientele. It is one of the specificities of Hermès,” he noted. “Therefore, raising prices significantly in Europe at this stage would involve sacrificing to a degree this local clientele for reasons of global strategy, and for the moment, we don’t want to do that.”
France and the rest of Europe jointly accounted for 35 percent of revenues last year, compared with 34 percent for the Asia-Pacific region, excluding Japan.
Dumas predicted that leather goods would continue to see strong growth in 2015, after a 14.6 percent increase last year, as it continues to bring new production capacities on stream. The group created 700 jobs in 2014, including more than 400 in France, and its head count stood at 11,718 at the end of the year.
He said there were no signs as yet of an improvement in watch demand in Asia. A sharp slowdown there weighed on sales, which fell 10.6 percent in 2014, but Hermès is banking on a new head of the watch division, Laurent Dordet, and the upcoming launch of its Slim d’Hermès timepiece to turn around its fortunes.
Hermès plans to open three stores in 2015, in line with its recent policy of focusing investment on renovating and expanding existing units. Investments should total 320 million euros, or $350 million, in 2015, broadly unchanged from the previous year, Dumas said.
All dollar rates are calculated at average exchange rates for the period in question.