Hermes, Remy Cointreau dampen fears of waning Chinese demand

PARIS Thu Jul 19, 2012 7:35am EDT

An employee arranges bottles of whisky at a supermarket in Shanghai March 9, 2011. REUTERS/Aly Song

An employee arranges bottles of whisky at a supermarket in Shanghai March 9, 2011.

Credit: Reuters/Aly Song

PARIS (Reuters) - The Chinese are still snapping up Birkin bags and rare Cognacs, boosting sales for European luxury goods companies Hermes and Remy Cointreau and calming fears that demand may be cooling.

Luxury goods companies have become increasingly dependent on China as European customers pull back, and they are anxiously watching for any sign that demand in the world's second largest economy is slowing.

Those fears abated on Thursday when French spirits group Remy Cointreau beat forecasts with a 24.4 percent rise in first-quarter sales, driven by robust demand for its cognac in Asia and the United States.

Similarly, Hermes reported a 13.4 percent rise in second-quarter sales supported by strong growth in the Asia-Pacific region outside of Japan, which rose 26.9 percent.

"We see no slowdown in China," Hermes Chief Executive Patrick Thomas said in a phone interview.

Hermes derives 32 percent of its sales from Asia Pacific excluding Japan, making it one of the company's most important markets. Growth in Asia helped offset slower growth in France and the U.S.

"The good surprise is Asia, with a net acceleration despite a difficult (strong) base of comparison." said Thomas Mesmin, a Paris based analyst covering Hermes for CA Chevreaux.

CHINA STRONG

The Asia-Pacific region, mainly driven by China, is the fastest-growing luxury market in the world. By 2014 it could become the second-largest luxury market, after Europe, according to research from consulting firm Bain.

But China's growth rate slowed for a sixth successive quarter in the period to end June, to its slackest pace in more than three years.

Hermes has been particularly proactive in going after the Chinese customer who covets the French company's iconic leather handbags and printed silk scarves, but also values an Asian aesthetic.

To capture those customers it owns a major stake Shang Xia, a Chinese luxury brand founded in 2008 that specializes in dark wood furniture and porcelain bowls.

Remy Cointreau has also targeted the wealthy Chinese buyer, marketing its Louis XIII cognac, which can sell for around 2,000 euros ($2,500) a bottle. Asia is Remy's top-selling region, representing 62 percent of the group's cognac sales.

Remy Chief Financial Officer Frederic Pflanz reassured analysts during a call on Thursday that demand remained strong. Remy Cointreau makes 38 percent of sales in the buoyant Asia and Pacific region.

"For our market in China we have not seen to date any slowdown. There is continued consumer enthusiasm for our high-end products," he said.

Pflanz said Remy's cognac was also benefiting from strong demand from customers in Japan and Southeast Asia.

He played down analysts concern about the possible impact of a Chinese government plan to ban civil servants from using government funds to purchase luxury goods.

Both companies reported reasonably strong demand in their home European market, where the economic crisis continues to engulf the continent.

The maker of Remy Martin cognac, Cointreau liqueur and Mount Gay Rum said it was continuing to monitor the economic situation in Europe closely but was confident of generating "steady and profitable growth" in the financial year to March 2013.

Hermes reported strong growth in Europe, and kept to its 2012 forecast, but noted that French sales were slightly weak in the quarter and the production of some leather goods had been impeded in May by a number of public holidays.

Remy Cointreu SA shares were up 4.7 percent at 1150 GMT (7.50 a.m EDT) , while rival spirits group Pernod Ricard added 3.4 percent. Hermes shares, which are thinly traded, were up 2.4 percent.

Last week Britain's Burberry reported a decline in first-quarter sales growth due in part to a slowdown in Asia.

Analysts will be looking to French luxury powerhouse LVMH, which has previously sounded a note of caution on Chinese sales, to see whether it has seen a sales slowdown in Asia. The company reports sales figures next week.

(Reporting by Nina Sovich; Additional reporting by Pascale Denis; Editing by Elaine Hardcastle)

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