Luxury Rebounds As Hermès Sales Surge to $1.4 Billion

Hermes spring 2017/
Hermes spring 2017.

Luxury is bouncing back, with an acceleration in third-quarter sales at Hermes International the latest signal of an improving sector.

Revenues at the French maker of Birkin bags gained 9.9 percent in the three months ended Sept. 30 to 1.26 billion euros, or $1.4 billion at average exchange rates for the period in question. At constant exchange rates, the improvement stood at 8.8 percent.

This compared with organic growth of 8.1 percent in the second quarter and 6.2 percent in the first three months of the year. The Hermès sales echo positive figures from luxury giants Kering and LVMH Moët Hennessy Louis Vuitton, which also trumpeted faster growth in the third quarter.

“Many of the psychological catalysts which dampened luxury demand — starting with the renminbi deterioration in August 2015 and including attacks in Paris in November 2015 — have now been shrugged off,” HSBC’s Erwan Rambourg and Antoine Belge wrote in a report earlier this week, the latest analysts to call a return to a bull market on luxury.

“Every market, with the possible exception of Japan, is doing better or in line with previous trends. After the U.S. election and once we pass the one-year mark after the Paris attacks, these trends could get even better,” they added.

However, Hermès maintained its cautious outlook for the full year, reiterating that it expects sales growth at constant exchange rates to be below 8 percent. For the first nine months of the year, organic revenues were up 7.7 percent.

It expects operating profitability to be slightly higher than the 31.8 percent recorded in 2015, thanks to the positive impact of foreign exchange hedging contracted last year.

Hermès said even beleaguered Japan registered organic growth of 5.6 percent in the third quarter, with virtually all other geographic regions posting growth as sustained demand for its leather handbags compensated for the lackluster performance of its clothing lines, accessories and silk scarves.

“In a more adverse context, growth over the first nine months of the year was driven by the success of leather goods and saddlery which confirmed its role as the mainstay of the group,” it said.

France was down 0.9 percent as tourism continued to struggle in the wake of last year’s terrorist attacks, but Europe as a whole posted a 5.2 percent sales increase. Asia Pacific, excluding Japan, gained 14.2 percent as sales in continental China continued to rise, despite a challenging context in Hong Kong and Macao. Revenues in the Americas were up 7.3 percent.

Sales of leather goods and saddlery rose 16.3 percent at constant exchange rates, driven by the continued success of handbags including the Birkin, Kelly, Constance, Halzan and Lindy. Hermès has been increasing output to meet demand for its bags, which often generate months-long waiting lists.

However, sales of ready-to-wear and accessories gained just 0.1 percent, while silk and textiles continued to struggle, with a 4.1 percent decline in the third quarter.

Sales of perfumes rose 10.2 percent, thanks in part to the launch of Galop d’Hermès. Watch sales rose 0.4 percent, while the other Hermès sectors group — which includes jewelry and home products — was up 4.4 percent.

Currency fluctuations dented revenues by 11 million euros, or $12.3 million, in the first nine months of the year.