Hermes sales advance, adding evidence of luxury recovery

Hermes International SCA added to evidence of a luxury rebound as shoppers in Asia buy more silk scarves and Birkin handbags while tourists who were deterred by terrorism return to its stores in Europe.

Revenue climbed 7.6 percent to 1.5 billion euros (USD1.6 billion) in the fourth quarter, the Paris- based company said yesterday, meeting analyst expectations. Growth was led by Japan and Europe, excluding France, but Hermes said its domestic market and all-important China also showed signs of a turnaround.

“I see an improvement in China and much higher appetite for our industry generally since the second half,” Chief Executive Officer Axel Dumas said on a call with reporters. “We see a lot of appetite for a diverse range of our products, from shoes to ready-to-wear, bags and silk.”

Hermes joins other luxury-goods companies in reporting gains after several years of ebbing demand in China and a slowdown in tourism in Europe. Christmas-season sales and earnings at Louis Vuitton-owner LVMH beat analyst estimates, while British trenchcoat maker Burberry Group Plc said business in the Asia-Pacific region is rebounding. Richemont, the maker of Cartier jewelry, reported a return to growth.

At Hermes, revenue growth in Asia-Pacific, excluding Japan, slowed to 4 percent from 14.2 percent the previous quarter. The slowdown is due to lower inventories in leather goods after the company ramped up output and sales with new production sites earlier last year, said Zuzanna Pusz, an analyst at Berenberg.

“This led to slower deliveries of leather goods, primarily in the Asia-Pacific region, where regional performance was said to have been particularly penalized by the timing of that,” Pusz wrote in a note after an analyst conference call.

While growth in sales of leather goods slowed to 8.5 percent from a 16.3 percent increase in the third quarter, silk ties and scarves showed an 11 percent gain, recovering from a 4.1 percent slide. Dumas said the silk and textiles business benefited from easier comparisons, with growth returning in France and China. The unit had been particularly affected by terrorist attacks in Europe.

“Tourism in France is better than last year, but not yet at the level it used to be,” Dumas said. “I see some recovery. The other countries in Europe did well, especially Italy and the U.K.”

For the year, revenue growth was 7.4 percent, the slowest annual increase in at least five years. Hermes in September abandoned a mid-term annual forecast for sales growth of about 8 percent, saying it aims for “ambitious growth.”

The company, which is due to report full-year earnings March 22, said its operating margin improved slightly in 2016, as it had forecast. It was 31.8 percent in 2015. Corinne Gretler, Bloomberg