Currency weakness hits Hermes leather sales

France
Published:  07 November, 2013

French luxury goods maker, Hermes experienced a 0.5% drop in leather goods sales at current currencies in the third quarter, one of the worst performances of its biggest business in recent years. However, against constant currencies leather goods sales were up 8.4% and most analysts were happy with the results.

Hermes, with Japan and the United States as major markets, was hit by the weakness of the yen and US dollar in the quarter, and saw third-quarter sales rise by 5.5% to 895.5 million.

The 176-year-old business whose leather handbags start at about 5,000 euros ($6,800) and make up 44% of its total business, said currency fluctuations knocked 116 million off its nine-month turnover of 2.66 billion to September.

Sales from Japan dropped nearly 20% in the third quarter on a reported basis at current currencies, but they were up nearly 6% at constant currencies.

"The performance is not as good as expected in leather goods and we would like to know if it is because of production constraints or delays in shipments to the shops," said a luxury goods analyst.

Overall, third-quarter sales rose 12.9% at constant exchange rates, slightly below expectations of 13.4%.

Hermes said its full-year sales growth at constant currencies could exceed 11%, higher than its previous forecast of growth of slightly more than 10%.

Hermes said it expected its operating margin this year to be close to its record of 32.1% in 2012. At the half-year stage, the operating margin was already at 33.1%.

"It is a touch below expectations but the performance differential compared with what we have seen so far in the space make it a decent set of results, the guidance is still quite encouraging. We would expect a very limited, maybe slightly negative stock reaction," a Paris-based trader said.

At constant currencies, silk products had growth of 13% and ready-to-wear and fashion revenue rose 19%. Sales from watches were up 5.3%, while leather goods rose 8.4%.

Source: Reuters

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