Hermes Half Year Profit Rises 55%

Paris–Hermès International SCA, the French maker of luxury handbags, silk scarves and other accessories, said today its first-half profit increased 55% as demand rebounded, buoyed in particular by Asia.

Hermès, which has had a strong rebound in its accessories business, again slightly raised its financial targets for the full year, forecasting on Tuesday that sales could rise 10% to 12% at constant exchange rates while its operating margin would improve by at least 1 percentage point.

Net income rose to 194.6 million euros ($246 million) from 125.4 million euros a year earlier, beating analysts’ average estimate of 171.2 million euros. Sales revenue gained 23% to 1.07 billion euros, the company reported in July. Operating profit as a percentage of sales widened to 28.3% from 22.8% a year earlier.

Accessories Sales on the Upswing

Hermès has benefiting as luxury goods demand has increased in Asia, which had a 45% surge, and particularly China, where it opened two stores in the second quarter and extended its distribution network. Only Japan had a decline, sales edged down 2%.

While sales in Europe were up by 17% in the first half, the rebound in the Americas “initiated in the fourth quarter of 2009 continued throughout the first six months, with a rise of 26% at end-June,” the company reported, noting that its first Hermès store dedicated to men on Madison Avenue in New York met with resounding success.

“The trend in the market is extremely favorable and makes us confident for the coming years,” Hermès’ finance head Mireille Maury told Reuters.

Despite the rebound, however, the company is also being cautious about the second half. “The growth rate registered in the first half cannot be extrapolated in the second half owing to a higher comparison basis,” Hermès said in a statement.

Referring to the revised forecasts, Natixis analysts wrote: “This upgrade, which is timid in the light of the very good first-half performance, comes with a reminder that the basis for comparison in the second half will be tougher.”

Nonetheless, “the strong margin performance by Hermès and its continued optimistic outlook provide a strong read-across for the rest of the sector and indicate that the luxury consumer is less affected by concerns over an economic slowdown than generally feared,” said Dennis Weber, analyst at Evolution Securities.

By classification, Hermès reported that its silk business grew 17%, underpinned by the success of the new women’s silk collections, which were expanded to include new products in cashmere and silk. Improves sales in handbags and small leathers fueled a 23% in its leathergoods and saddlery business. Ready-to-wear and fashion accessories delivered a rise of 18%, attributable primarily to the success of fashion accessories. After a difficult year in 2009, watches registered a 33% surge.

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