UPDATE 2-Hermes sales growth slows as economies falter

Thu Jul 19, 2012 2:59am EDT

* Q2 growth 13.4 pct vs 17.6 pct in Q1

* Keeps target for full-year sales growth of 10 pct

By Nina Sovich

PARIS, July 19 (Reuters) - French luxury goods maker Hermes said second-quarter sales growth slowed in the face of increasing economic turbulence, though it stuck to its full-year target as emerging-market customers continue to flock to the high-end brand.

The maker of handmade leather bags, silk scarves and ready-to-wear fashion said sales reached 814.5 million euros ($999 million) in the quarter, with revenue in Asia, its biggest market, rising 16.2 percent at constant exchange rates.

Overall sales grew 13.4 percent at constant currencies, with the pace of growth slowing from 17.6 percent in the first quarter. The rise in reported sales was stable in both quarters at 21.9 percent, Hermes said in a statement on Thursday.

Hermes struck a note of caution about its full-year prospects, saying it expected to hit targets but that currency fluctuations and the global economic crisis could take its toll.

Despite a slowing global economy and chronic unemployment in Europe, high-end luxury goods have experienced a burst in profitability and sales as newly rich Chinese from the mainland lap up high-status brands.

Both Hermes and luxury brands such as LVMH and PPR are increasingly dependent on these Chinese shoppers who frequently come to Paris to buy luxury items because they are significantly cheaper than in China.

However, recent signs that the Chinese market may be slowing down have thrown a note of caution into the analysis of the luxury companies and their 2012 prospects.

Britain's Burberry provided the first concrete evidence of the earnings season that China's economic slowdown would hit luxury brands last week when it reported a decline in first-quarter sales growth.

Hermes said on Thursday that sales in Asia-Pacific, excluding Japan, rose 26.9 percent, confirming that growth in that region remained strong, as it did in the Americas, where growth was up 8.2 percent from a strong 2011 base.

In the vital leather goods and saddlery division, where the company derives much of its revenue and profits, sales rose 7.4 percent to 381 million euros. Ready-to-wear and fashion, generally considered to be a more volatile source of income, rose 22 percent to 173.3 million euros.

However, the biggest growth was reserved for the small and relatively new line of Hermes homewear and jewellery. There sales rose 53.1 percent to 37.7 million euros, confirming that the market for the most expensive lines of luxury, often watches and jewellery, continued apace.

Hermes said its full-year underlying operating margin would be between an all-time high hit in 2011 and the 2010 rate.

The company, which tends toward caution when making financial projections, also said that it expected to achieve full-year consolidated revenue growth of 10 percent.

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