Bloomberg News

Hermes Sales Rise Least Since 2009 on Slowing Leather-Goods Gain

April 22, 2013

Hermes International SCA (RMS), the French maker of Kelly handbags, reported the slowest revenue growth in more than three years because of diminishing gains in the leather-goods unit and a drop in watch sales.

Revenue in the first quarter of 2013 climbed 10 percent to 856.8 million euros ($1.1 billion), Paris-based Hermes said today in a statement. Analysts predicted 854 million euros, according to the average of five estimates compiled by Bloomberg. Excluding currency swings, sales advanced 13 percent, the least since the last three months of 2009.

Weaker performances in leather-goods and watches took the shine off a stronger showing from the clothing unit. Leather- goods sales, Hermes’s biggest source of revenue, gained 7.3 percent excluding currency swings, about half the rate of the year-earlier quarter and the slowest since the third quarter of 2007. The slowdown may have been caused by reduced output, said Rodolphe Ozun, an analyst at Bank of America Merrill Lynch.

“The slowdown in leather goods highlights in our view the normalization of production in this segment and should continue in the coming quarters,” Ozun wrote in a report.

Hermes rose 1 percent to 251.30 euros at 11:15 a.m. in Paris, mirroring gains by stocks across Europe. That gave the saddle maker a market value of 26.5 billion euros.

All product categories posted revenue growth except tableware and watches, Hermes said. Sales of timepieces declined 5.3 percent, excluding currency shifts, as the Chinese market slowed at the start of the year, Hermes said.

Chinese Demand

The comments on softening Chinese demand “could have a negative read-across on the hard-luxury names” such as Cie. Financiere Richemont SA (CFR), Josephine Chevallier, an analyst at Natixis Securities, said in a note to clients. LVMH, which owns 22.3 percent of Hermes, said last week that retailers bought fewer watches than expected in the first quarter.

Richemont, the owner of the Vacheron Constantin and IWC brands, fell as much as 0.7 percent in Zurich. Swatch Group AG (UHR), the maker of Omega watches, dropped as much as 1.1 percent.

Luxury-goods makers have reported divergent sales trends this year. LVMH last week posted its slowest quarterly growth in fashion and leather-goods revenue since 2009, citing a drop in Japanese tourism and fewer store visitors in China. Burberry Group Plc (BRBY) reported revenue that beat estimates as sales of its more expensive products compensated for weak shopper numbers.

Hermes is aiming for revenue growth of about 10 percent in 2013, Chief Executive Officer Patrick Thomas said last month. Production capacity for leather goods will increase steadily over 2013 after Hermes built two workshops last year, the company said today.

Currency Impact

Currency fluctuations were “unfavorable” in the quarter and reduced revenue by 19 million euros, Hermes said.

Sales of clothing and fashion accessories increased 18 percent, while silk and textiles had a 15 percent gain and perfume revenue rose 18 percent, Hermes said.

“Demand for Hermes collections remains strong, favored by a growing requirement for quality, personality and timelessness of objects and clothes,” Hermes said, adding it will continue to follow its strategy.

Revenue excluding currency shifts gained 14 percent in Asia, 12 percent in Europe and 11 percent in the Americas. In Japan, where sales advanced 7 percent, the environment seems to be more positive, the company said.

Tableware sales fell 1.9 percent.

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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