Bloomberg News

Hermes Lifts Revenue Goal as Sales Beat Analysts’ Estimates

July 19, 2011

(Updates with CEO comments starting in eighth paragraph.)

July 19 (Bloomberg) -- Hermes International SCA, the French maker of Kelly handbags and silk scarves, raised its target for annual revenue growth and said first-half operating profit should grow “significantly” more than sales.

Revenue will probably gain 12 percent to 14 percent at constant exchange rates, the Paris-based company said today, raising the forecast from as much as 10 percent. The bagmaker, in which LVMH Moet Hennessy Louis Vuitton SA owns a 20.2 percent stake, also said its full-year underlying operating margin will be close to the record level of 2010 and reported an 18 percent increase in second-quarter sales, beating analysts’ estimates.

“Hermes is well positioned in a buoyant luxury-goods market, delivering fast sales and earnings growth while maintaining its status as one of the most exclusive brands around,” Pierre Lamelin, an analyst at CA Cheuvreux in Paris, said in an e-mailed note. He rates the stock “underperform.”

The quarterly revenue increase was led by the Asia-Pacific region where wealthy consumers are purchasing more high-end watches and accessories. Worldwide sales of luxury goods may rise 8 percent this year as demand strengthens in the U.S. and Europe and emerging-market shoppers splurge on costly handbags and other items, Bain & Co. said in May.

Second-quarter revenue at Hermes rose to 668.4 million euros ($941 million) from 566.9 million euros a year earlier. The average estimate of seven analysts compiled by Bloomberg was 635.6 million euros. Excluding currency shifts, revenue climbed 22 percent, the company said. The quarterly growth rate was the highest in more than a decade, according to Lamelin.

Psychological Threat

Hermes rose 95 euro cents, or 0.4 percent, to 221.70 euros as of 11:12 a.m. in Paris trading. The shares have jumped 41 percent this year, the third-biggest gain in the 11-member Bloomberg European Fashion Index, which has risen 5.7 percent.

Hermes’s pretax profit margin for the first half of 2011 widened by four to five percentage points following the sale of a stake in Jean-Paul Gaultier’s fashion label, the company said. It will report full results for the period on Aug. 31.

Growth will be slower in the second half than in the same period of 2010 because the final six months of last year were so strong, Chief Executive Officer Patrick Thomas said in a telephone interview. He also said he is concerned by the international financial situation.

“Our business is highly psychological and when people feel there is a bad mood internationally, there is instability, there is a threat on the economy, then people buy less,” Thomas said. “There could be effects on our business in the second half.”

Production Capacity

Excluding currency shifts, second-quarter revenue jumped 24 percent in the Asia-Pacific region, excluding Japan, where sales rose 0.5 percent, Hermes said. Sales advanced 22 percent in the Americas and 21 percent in Europe on the same basis.

Sales of leather goods increased 9 percent at constant exchange rates, while revenue from silk ties and scarves gained 27 percent. Apparel and fashion accessories sales climbed 34 percent on the same basis. Women’s shoes are performing “extremely well,” Thomas said.

Hermes, which is hiring more craftsmen and women, is able to increase production capacity more quickly for apparel and fashion accessories such as gloves and jewelry than for leather goods, where growth is limited by the number of skilled workers the company has, Thomas said.

“I don’t want to compromise our product quality” to meet demand for leather goods, Thomas said. “I prefer to limit our growth rate.”

Watch revenue rose 23 percent, excluding currency swings. Hermes’s full-year sales growth from timepieces may be reduced after this year’s earthquake in Japan, the head of the company’s watch unit said in March. Perfume sales advanced 4 percent on the same basis, while tableware sales rose 38 percent.

--Editors: Paul Jarvis, Celeste Perri.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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