Apr 29, 2015
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Japan keeps Hermes sales growth on target

Apr 29, 2015

French luxury goods maker Hermes posted an 8 percent rise in first-quarter sales on Wednesday, helped by strong growth in Japan.

That was down from nearly 10 percent growth in the fourth quarter, but broadly in line with analysts' expectations and matched the firm's full-year and medium-term targets.

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The maker of the Birkin and Kelly handbags said sales in its own stores rose 10 percent at constant currencies, with foreign exchange fluctuations boosting revenue by 103 million euros ($113 million).

Hermes remains one of the strongest performers in the luxury sector thanks to resilient demand for its classic leather handbags for which there is consistently more demand than supply.

In contrast, sales at the fashion and leather goods unit of industry leader LVMH, which includes the Louis Vuitton, Celine, Dior and Fendi brands, rose 1 percent in the first quarter, below expectations. Kering's Gucci saw an 8 percent sales drop.

Revenue in Japan, one of Hermes' biggest markets, rose by 15.2 percent at constant currencies but was up only 7.7 percent in the Asia-Pacific region mainly consisting of China, as trading remained tough in Hong Kong and Macau.

"Trends in Asia excluding Japan remain tough," said Hermes Chief Executive Axel Dumas.

First-quarter sales rose 19 percent on a reported basis to 1.12 billion euros.

"Western Europe was surprisingly soft (up 3.1 percent excluding France and 6.4 percent in France) at a time when a number of peers have been talking about a pick-up in tourist demand on the back of the weakened euro," UBS analyst Eva Quiroga said.

In February, Hermes lowered its annual sales growth target for the first time from its traditional level of 10 percent to reflect its bigger size and an overall industry downturn.

"This is a deceleration versus the 10-11 percent rate seen in previous quarters, yet it is quite encouraging in the context of the 8 percent guidance for full-year sales, as it comes against very high comparatives, with almost 15 percent growth in the first quarter last year," Exane BNP Paribas luxury goods analyst Luca Solca said. "Japan is particularly striking."

Dumas did not give a margin outlook for the year but warned the company was vulnerable to currency fluctuations. Hermes's operating margin in 2014 fell to 31.5 percent from a record 32.4 percent the year before, due partly to currency moves.

Hermes shares were up 2.7 percent at 345 euros by 0748 GMT, valuing the company at 35.16 billion euros, making it Europe's third-largest luxury company by market capitalisation behind LVMH and Cartier owner Richemont.

€1 = $1.10/£0.71

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