* Raises full-year sales growth target to 15-16 pct
* FD says slowdown due to supply issues, not demand
* FD says October demand not affected by economic outlook
* Q3 sales 683 mln eur vs Rtrs poll avg 674 mln
* Q3 sales rise 18.2 pct at constant forex
(Adds detail, finance director and analyst comments, share
By Astrid Wendlandt
PARIS, Nov 4 French luxury group Hermes
raised its full-year sales forecast on Friday after
third-quarter growth beat its initial target, pulled by buoyant
demand for the 174-year-old brand in Europe, the Americas and
The maker of 10,000-euro leather bags and 1-million-euro
($1.4 million) crocodile leather jackets said it expected
full-year sales growth at constant exchange rates to reach 15-16
percent this year, against a previous forecast of 12-14 percent.
The upgrade was expected by many analysts, and some said the
new forecast was still conservative.
"Even now the number does not look particularly ambitious,"
UBS analyst Eva Quiroga said.
Hermes sales rose 18.2 percent at constant exchange rates to
683.2 million euros in the three months to Sept. 30, while
analysts expected growth of 17 percent.
The upbeat outlook from Hermes comes after luxury peers such
as Burberry , LVMH and PPR posted
forecast-beating quarterly figures and said they saw no slowdown
in spite of global economic concerns.
Hermes said on Friday that demand had not weakened in
October due to the economic outlook and said the slowdown
witnessed in some regions and divisions in the third quarter was
due to production issues.
"It is entirely explained by problems we have been having
with stocks," Hermes Finance Director Mireille Maury told
Reuters in an interview.
"In some regions, such as France, we did not expect such
Hermes' sales growth slowed in France in the third quarter
to 5.4 percent from 20.8 percent in the first half. It also lost
steam in the Americas where sales rose 21.8 percent in the third
quarter as opposed to 34 percent in the first half at constant
Maury said Greater China (including Hong Kong, Macau and
Taiwan) had become its biggest market, representing 19 percent
of revenue. Japan, which used to be its biggest market, now made
up 17 percent of revenue, just like France.
Maury said trends in Japan had markedly improved since the
earthquake, and sales in the third quarter there rose 3.2
Growth in Hermes' leather goods, its biggest division, also
slowed in the third quarter to 10.3 percent at constant exchange
rates from 14.5 percent in the first half, and Maury said
leather goods sales were expected to rise 10-12 percent at
constant foreign exchange rates overall this year.
She added that Hermes was continuing to invest in production
capacity, which has increased by about 10 percent annually, and
that it planned to open two leather goods plants in France in
the near future and expand silk production facilities near Lyon.
She said investment in new shops stood at around 200 million
euros this year. By the end of the year, some 20 shops would
have been opened, including in Rome, Geneva and Mumbai.
Hermes had warned that growth in the second half of the year
would not be as strong as during the first half and on Friday it
said meeting its 2011 target would depend on its divisions'
ability to meet pent-up demand ahead of the holiday season.
Over the full year, the French company said it expected its
current operating margin to be slightly higher than the record
level achieved in 2010.
LVMH said last month it was confident for the rest of the
year when posting forecast-beating third-quarter sales, while
PPR said last week it saw no sign of a slowdown as its quarterly
sales also beat expectations.
Hermes added that it bought back 912,662 of its own shares
for 211.7 million euros in the third quarter as it looks to
bolster its defence against LVMH, which has built a stake of
some 21.4 percent in the majority family-owned group.
Hermes said it expected to have created a family holding by
the end of the year which would control just under 51 percent of
equity and lock in descendants of Emile Hermes for 20 years,
thereby preventing them from selling stock to LVMH.
By 0938 GMT, Hermes shares were up 1.3 percent at 248 euros,
having risen 56 percent since Jan. 1, mainly on speculation LVMH
would make a bid.
($1 = 0.725 euro)
(Additional reporting by James Regan, Pascale Denis, Editing by
Mike Nesbit and Helen Massy-Beresford)