UPDATE 2-Hermes first-quarter sales rise on strong Asia

Thu May 3, 2012 6:28am EDT

* Q1 sales rise 17.6 pct at constant exchange rates

* Hermes gives no specific earnings forecast

* No slowdown in China, April growth steady

* Europe excluding France up 27 percent

* Non Japan Asia sales rise 22 percent

By Nina Sovich

PARIS, May 3 (Reuters) - Hermes first-quarter sales grew strongly as Chinese buyers flocked to stores in both Europe and Asia, yet the French luxury goods firm warned that the weak European economy could drag down growth in 2012.

The slowdown was not yet evident in the April figures, Chief Executive Patrick Thomas said, noting that the month was broadly in line with the beginning of the year, but the turmoil of Europe would likely soon take a toll.

"It is going to be a very difficult year," he said in an interview with Reuters. "The beginning was easy ... but the trend is not good."

Hermes sales for the quarter grew 17.6 percent, excluding currency fluctuations. Yet Hermes kept a cautious target of roughly 11 percent growth for 2012 and noted that operating margins might be hit by commodity prices.

European sales for the quarter were strong, up some 27 percent in organic terms, stripping out France where growth was weaker due to supply problems. Thomas attributed European growth to brand loyalty and Asian tourism.

The Asia Pacific region also drove growth, with sales up 22 percent, excluding Japan. Thomas said he saw no slowdown in demand for goods in China, a market which is closely tied to the health of the luxury goods industry.

Rival luxury company LVMH's stock fell slightly in April when it intimated that demand in China was weakening for items like Louis Vuitton bags and Dior perfumes.

Strong sales of PPR's luxury division Gucci helped allay some of those concerns when the company reported that sales in China remained strong.

Like most European luxury companies, Hermes has experienced a boom as status-driven shoppers immune to the global credit crisis snap up hundred thousand-euro snakeskin jackets and hyper expensive leather and wooden furniture pieces.

The 175-year-old company, which has eye-popping profit margins but downplays its commercial intent in favour of its artisanal history, has been careful to limit store openings and maintain an aura of exclusivity.

For ordinary customers, there can be a five-year wait for the Birkin bag and Hermes has benefitted from the relative difficulty counterfeiters have of imitating the handmade bags.

In large part the company's image and baseline revenues are still driven by its oldest division, leather goods and saddlery, which accounted for slightly less than half of sales in the quarter, and posted 13.5 percent growth.

But it was the newer units that showed unexpectedly strong sales. Jewellery and the homeware line dubbed "Art of Living" saw sales grow 46 percent.

Watches and tableware also had a strong quarter, as did the ready-to-wear fashion division.

Hermes's success has attracted the attention of larger luxury goods company LVMH, which also reported strong sales growth for the quarter. Against the wishes of Hermes' management, LVMH has taken a 22 percent stake in it.

Takeover rumours and consistently strong performance have turned Hermes into one of the most expensive stocks in Europe. It currently trades at 47 times earnings, while European averages hover around a ratio of 11.

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