Wall Street Journal
By Mimosa Spencer
Luxury company Hermes International posted a 26% rise in first-quarter sales Wednesday, capping a series of brisk sales reports from a sector that has strongly rebounded this year.
But the French company didn't update its full-year guidance of sales growth of between 8% and 10% this year, excluding the effect of foreign exchange rates, a target seen as conservative by many. Hermes cited geopolitical and economic uncertainties, as well as trends in Japan, as clouding the outlook for the year, reflecting cautiousness more characteristic of luxury executives during the economic downturn than since its return to strong growth last year.
Sales for the famous saddlery and Kelly handbags maker in the first three months of the year rose to €637 million from €508 million a year earlier, with fast sales growth across regions. The figure beat analyst expectations of €598 million.
Sales grew 20% in Europe, 17% in Asia and 33% in the Americas, at constant rates, driven by the company's leather goods business.
The report was "very strong" and illustrates that the "stellar growth enjoyed by the luxury goods sector is not only driven by Asia," noted HSBC analyst Antoine Belge.
Hermes is the last major listed European luxury goods company to report quarterly sales. Last month, industry giant LMVH Moet Hennessy Louis Vuitton SA and Gucci owner PPR SA both beat high expectations, raising hopes still further for a strong year from the sector.
Bain & Co. last week said it expects the sector to rise 8% this year, driven by demand from shoppers in China, in particular.
But question marks remain over trends in Japan after the earthquake and tsunami there dashed hopes for a recovery in demand for luxury goods after a period of decline. Hermes financial director Mireille Maury said that the company expects sales in Japan to decline this year compared with last year. In the first quarter, sales grew 0.3% in Japan at constant rates, on sales of €102.6 million.
Ms. Maury said the company, which last week agreed to sell its 45% stake in fashion label Jean-Paul Gaultier to Spanish Grupo Puig for €16 million, doesn't have any assets it considers nonstrategic. Hermes could be interested in acquisitions to reinforce existing areas, but doesn't have any projects in the works, she said. Hermes will invest €230 million this year, the bulk of which will go on building 14 new stores and refurbishing 10 existing ones, Ms. Maury said.
Like other leading luxury goods brands, the company has focused much of its store expansion on China to tap into booming demand from new classes of wealthy consumers there. Hermes has also taken the unique step of creating its own Chinese luxury brand, Shang Xia, which it intends to develop outside of China, although it still hasn't set a date for the opening of a planned store in Paris, Maury said.
At 1317 GMT, Hermes shares traded up 5% to €169.85 outperforming a 0.4% rise in the Paris SBF-120 index. Hermes' shares have been bouyed by persistent takeover talk. The bulk of shares floated on the market were snatched up by larger rival LVMH, which now has a 20% stake and is seen as a hostile presence by members of the controlling family that holds over 70% of the company.
