Retail | Hermes confirms luxury rebound with strong gains in Asia

Hermes International SCA reported quarterly sales that beat estimates as the brand’s new production sites maintained faster output of Birkin bags and other leather goods to help meet surging demand in Asia.

Revenue climbed 11 percent on a constant-currency basis, Paris-based Hermes said yesterday, beating the 8.8 percent median estimate of eight analysts in a Bloomberg survey. The shares rose as much as 1.3 percent.

The results represent a marked uptick from a year ago, when flagging consumption in China and a terror-related downturn in European tourism saw the company report its slowest quarter in seven years. The luxury-goods industry has bounced back more broadly, with first-quarter results from leading names LVMH and Kering surging past analyst estimates.

“Despite an uncertain economic context we did very well,” Chief Executive Officer Axel Dumas said on a call with reporters. “You see an acceleration of the sales in mainland China. The sales are improving in Macau and Hong Kong.”

Berenberg analyst Zuzanna Pusz said the results underpinned the industry’s recovery, even though the company cautioned that the growth rate could not be projected across the full year because of favorable comparisons in the first quarter.

“Hermes reported a very strong start to the year, pointing to the broader improvements in the luxury sector as well as a very solid underlying demand for its products,” she said in a note.

LVMH CEO Bernard Arnault’s plan to take full control of Christian Dior SE is a positive because it will boost liquidity in Hermes stock, Dumas said. The deal weighed on Hermes shares earlier this week because the Arnault family plans to help fund it via its stake in its Paris rival, dumping more of the shares onto the market.

Sales of leather-goods and saddlery, which account for roughly half of Hermes revenue, jumped 15 percent, benefiting from increased production. Hermes has opened new workshops and trained more leather workers as demand for the brand’s handbags held up even during the sector’s slowdown of 2015 and 2016.

The company said it was continuing to invest in a third production site in the Franche-Comte region in eastern France. It plans to increase leather-goods production by 8 percent and to hire and train 250 workers this year.

Hermes, which affirmed an “ambitious” medium-term goal for revenue growth, was helped in Asia by the renovation of a store in Singapore and the opening of a new outlet in Chongqing, China, Dumas said. The recent strength of the yen held back previously buoyant tourist spending in Japan, he said.

New customers seeking entry-level Hermes goods are boosting the company’s performance in China. Sales of the brand’s iconic silk scarves and ties rose 8.5 percent in the first quarter worldwide after a decline a year earlier.

“There’s been quite a change of the client profile,” Dumas said. “The Chinese customer is quite young, younger than he used to be.” Robert Williams, Bloomberg