Hermès Q3 Sales Rise 6.4%

hermes ready to wear spring 2018,
Hermes spring '18
Xavier Granet

Hermès International posted a 6.4 percent rise in third-quarter sales as currency rates dragged on brisk business from all geographic regions.

Sales at the maker of high-end bags totaled 1.34 billion euros ($1.55 billion) over the period, up 11 percent, with double-digit growth from all regions except the Americas and Japan, up 8.7 percent and 6.7 percent, respectively.

Elsewhere in Asia, sales grew 12 percent.

“There were no major surprises in regional trends,” noted Rogerio Fujimori, analyst with RBC Capital Markets, citing growth led by Europe and Asia, followed by steady growth in the Americas and Japan’s single-digit uptick.

Hermès reiterated its caution that the first-half performance, which was boosted by foreign exchange rate hedges from the previous year, could not be projected for the full year, noting its “ambitious goal for revenue growth at constant exchange rates.”

In terms of divisions, the perfumes business — one of company’s smaller segments — grew the fastest, up 23 percent, fueled by the launch of Twilly d’Hermès perfume, a scent designed to appeal to the younger set.

Ready-to-wear, apparel and accessories sales grew by 12 percent, lifted by fashion accessories and shoes, the company said.

Sales at the largest division, leather goods and saddlery, rose 9.3 percent, thanks to a diverse range of models including Constance and Halzan bags in addition to the company’s trademark Birkin and Kelly offerings. Hermès targets around 10 percent annual growth for the division.

Exane BNP Paribas analyst Luca Solca noted the leather goods division’s performance fell short of a consensus forecast of 10 percent, but overall, the 11 percent quarterly sales growth beat analysts’ expectations of 8.7 percent, thanks to ready-to-wear, silk, fashion and perfumes activities.

RBC this month slightly raised its target price for Hermès to 425 euros from a previous level of 420 euros, citing higher expectations for the ready-to-wear division, the company’s second-largest.

The RBC analysts also praised the company for the diversity of its handbag offering.

“Hermès is now successful in more than 10 bag families, with a nice mix of highly exclusive and ‘accessible’ items reflecting production cost and craftsmanship differentials, which somewhat reduces its dependence on Kelly and Birkin,” said RBC in its November note.

RBC also highlighted the company’s efforts to secure production capacity as supporting its expectations for leather goods growth in the region of 9 percent to 10 percent per year through 2020.

Hermès is building two new leather workshops in France, which will create 500 jobs, one near Bordeaux and another in a region neighboring Paris, set to open in 2020.

The company’s silk and textiles activity, as well the “other products” division, which includes John Lobb shoes and Puiforcat tableware, both grew at a clip of 17 percent.

Watches lagged the other divisions, climbing 6.2 percent, showing a gradual but continued improvement.

Hermès, which is celebrating the meaning of objects throughout the year, held a cocktail event on Tuesday in a wing of the Grand Palais in Paris in honor of an exhibit dedicated to its longtime window display designer Leïla Menchari. Guests including Azzedine Alaïa and Carla Sozzani joined Hermès CEO Axel Dumas to pay their respects to Menchari, who retired in 2014.