Leather key to good Hermes Q3 performance

France
Published:  07 November, 2014

Hermes the French maker of handbags and upmarket saddlery, reported third-quarter sales that beat estimates as good demand in Japan and the Americas helped compensate for a slowdown in China.

Third-quarter revenue rose 11% to €990.6 million ($1.2 billion), Paris-based Hermes said today in a statement. Analysts predicted 983.5 million euros, according to the median of estimates compiled by Bloomberg.

Supply constraints and high prices have helped cushion Hermes from softening luxury demand that has dragged on growth at LVMH and Gucci-owner Kering. Hermes on November 7 retained its mid-term objective of 10% revenue growth at constant exchange rates, though said currency swings may lead this year’s operating margin to narrow “slightly.” China’s luxury market is slowing, Hermes also said.

Hermes sales grew faster than analysts predicted in Japan and the Americas. Sales of leather goods and saddlery also exceeded estimates, supported by two new production facilities in France. Watches declined 14%, which Hermes attributed to “challenging” wholesale demand, particularly in Asia.

The company has an “ultra-luxury brand positioning and enviable brand momentum in the sector and analysts expect Hermes’s revenue to continue rising at least 10% with Ebit margins exceeding 30% “thanks to the exclusivity of the brand.”

Fewer Chinese tourists have been shopping in Hong Kong because of pro-democracy protests, while a government clampdown on gift payments has hit spending in China. Hermes currency-neutral sales in Asia, excluding Japan, climbed 10%, decelerating from the first half’s 17% rate.