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UPDATE 2-Hermes shrugs off China worries as profits rise
March 20, 2014 / 7:06 AM / 4 years ago

UPDATE 2-Hermes shrugs off China worries as profits rise

* Says sales over Chinese New Year went “rather well”

* 2013 operating profit up 9 pct, margin hits new high

* Dividend raised to 2.70 euros/share from 2.5 euros (Adds outlook, CEO’s comments, share price)

By Pascale Denis

PARIS, March 20 (Reuters) - French luxury goods maker Hermes saw good demand over the Chinese New Year, it said on Thursday, underscoring its resilience to a crackdown on illicit gift-giving in the industry’s biggest market that has hit some rivals hard.

Posting a 9 percent rise in 2013 operating profit, the maker of Birkin handbags and printed silk scarves also shrugged off the impact of the crisis in Ukraine on Russian shoppers.

“If they don’t travel anymore, they’ll still shop in Moscow,” Chief Executive Axel Dumas told reporters on Thursday.

An anti-corruption drive in China has dented sales of luxury goods from high-end watches to the logo-printed products sold by the likes of LVMH’s Louis Vuitton and Kering’s Gucci.

However, Hermes has proved resilient, reporting last month that its 2013 sales rose 13 percent at constant exchange rates, including a 16 percent increase in Asia.

The family-controlled group believes it is helped by an understated style.

Its iconic Kelly and Birkin leather handbags, which cost between 7,000 and 30,000 euros, can take months to obtain in certain colours or types of leather, creating scarcity and a reputation for exclusivity.

Dumas said sales over the Chinese New Year - an important trading period for luxury firms - had gone “rather well” and that Hermes was pressing ahead with expansion in Asia.

The group, which has 315 stores worldwide, plans to open three more stores in China this year, including a flagship one in Shanghai. Three other stores are due to open in Asia - in Thailand, Malaysia and South Korea.

Hermes’ operating profit rose 8.9 percent to 1.22 billion euros ($1.7 billion) last year and its operating margin hit a new high of 32.4 percent, from 32.1 percent in 2012.

The group said this was partly due to currency hedging gains against the yen, which lost over 20 percent in 2013, and analysts said the hedging gain was likely to be lower this year. The yen has sharply weakened over the past year and a half, on the back of Japan’s economic stimulus measures.

Dumas told Reuters in February that Hermes had hiked the price of its luxury goods in Japan by 10 percent over the month to counter the currency’s weakness.

UBS analysts forecast like-for-like sales growth of 11 percent this year for Hermes and a small decline in its operating margin to 32.2 percent.

Net profit rose 6.8 percent to 790 million euros last year and the company said it planned to pay a dividend of 2.70 euros a share for 2013, from 2.50 euros for 2012.

“We’re hoping for good results in 2014. We’re very confident but one should always be cautious,” Dumas said.

Shares in Hermes were down 0.4 percent to 236.55 euros at 1605 GMT, and are down around 10 percent so far this year.

With a market capitalisation of nearly 25 billion euros, or 27 times forecast 2014 earnings, Hermes commands one of the highest ratings among European luxury stocks, in part due to past speculation that LVMH, its largest external shareholder with a 23.1 percent stake, could make a takeover bid.

$1 = 0.7189 Euros Writing by Natalie Huet; Editing by Mark John and Mark Potter

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