Sales growth at France's Hermes picks up pace in third quarter

Luxury handbag maker Hermes said sales growth had accelerated in the third quarter, as demand for its perfume and scarf lines proved particularly strong and its performance in Europe and the Americas improved.

The French label, famed for its $10,000-plus Kelly and Birkin bags and squared silk scarves, said revenues stood at 1.34 billion euros ($1.55 billion) in the July to September period, up 11.3 percent year-on-year on a comparable basis.

Luxury goods companies including France’s LVMH and Kering are benefiting from revived appetite from Chinese consumers, boosting their sales this year even as they grapple with a strengthening euro.

That can temper demand from visitors on shopping trips to Europe and also hurt earnings converted into the currency.

Hermes - which makes most of its products, including its handmade bags, in France - said revenues had taken a 25 million-euro hit from currency effects in the first nine months of the year. Sales in that period stood at 4.05 billion euros.

The company reiterated that its first-half operating performance, which saw margins rise to a record high, could not be extrapolated to the full year as the impact of beneficial currency hedges wears off.

But it was upbeat on other fronts, confirming that comparable sales in its leather goods unit, the biggest contributor to earnings, would grow 10 percent in 2017.

Revenues in the division grew at a slightly slower pace in the third quarter compared to the previous three months.

They picked up sharply, however, in the smaller fragrances unit after the launch of Hermes’ new Twilly perfume for women, and clothing sales were robust.

Sales growth in Asia, which is Hermes’ biggest region by revenues, was stable from one quarter to the next.
“Mainland china enjoyed an acceleration in the sales growth and a very positive momentum, as you can see across the industry,” Chief Executive Axel Dumas told journalists, adding that south Asian countries such as Malaysia had also done well.

Analysts had expected sales across the group to rise by a more muted 8.5 percent on a like-for-like basis, which strips out currency fluctuations. They had grown 8.3 percent in the second quarter.

Hermes shares climbed 1.3 percent in early session trading, with the stock up roughly 15 percent so far in 2017.
“All in all, another solid quarter from Hermes,” Rogerio Fujimori, an analyst att RBC, said in a note.

Hermes is hiring staff for new leather workshops to meet demand, and like many rivals it is also trying to improve its online presence. It has relaunched its website in Canada and the United States, while the European version is due next year.