Paris—Hermès continues to make news in luxury retailing and this time it’s not just about the recent fight over LVMH’s “hostile” stake in the 173-year-old luxury house. Reporting today that its third quarter sales jumped 31%, Hermès lifted its full-year sales and margin forecasts.
Hermès said sales could rise around 15%, excluding currency swings, this year from $3.40 billion in 2009, up from its previous target of about 12%. Posting a strong rebound from 2009, the worst year ever recorded in the luxury market, Hermès said sales for the quarter ended September 30 increased to 590.1 million euros (about $818.4 million) from 452.1 million euros in third quarter 2009.
The company added it expected its underlying operating margin to rise by 1 to 2 percentage points this year—again higher than the previous forecast of at least 1 point increase. “The recovery in wholesale revenue initiated in the first half was confirmed and all Hermès business sectors delivered growth” in the third quarter, Hermès said in a statement.
Accessories Drive Sales
The quarterly sales increase was driven by higher sales at the company’s own stores, Hermès said. Hermès will continue to invest in expanding its distribution network over the full year, opening or renovating about 20 stores. Wholesale revenue continued to improve and all Hermès business sectors delivered growth, the company added.
Hermès’ chief accessories classifications continued to fuel increases. Revenue from silk ties and scarves, including expanded offerings in cashmere and silk, climbed 38% while the leathergoods and saddlery division had a 19.7% increase. Apparel and fashion accessories sales jumped 25%. The brand’s watch division posted the biggest sales jump, 47% as retailers continued to reverse their destocking begun in 2009.
For the first nine months of fiscal 2010, leathergoods, silks and fashion accessories contributed to increases, too. Sales in silk scarves advanced by 20% over the first nine months and leathergoods remained on a very high growth trend–up 22%–fueled by small leathergoods and high demand for leather bags including new handbags introduced in flagship locations. Ready-to-wear and fashion accessories division delivered a 17% rise, due primarily to fashion accessories, in the first nine months. Watches, which began rebound in the first half, grew 34% in nine months.
Revenue also increased all regions during third quarter. Europe rose 24%, led by France, and the Americas increased 31%. Sales jumped 21% in Japan and surged 52% in the rest of the Asia Pacific region.
Hermès ‘United, Vigilant’ on LVMH’s Stake
Patrick Thomas, ceo, told analysts in a conference call today that the Hermès family, whose members own nearly 75% of the shares, is “serene, united and extremely vigilant,” with regards to LVMH’s stake purchase. “Hermès will continue to follow its long-term strategy of maintaining control over its know-how and distribution network,” the company said.
LVMH surprised markets and Hermès executives in October when it revealed it held a 17% stake in Hermès, declaring it passed 5%, 10% and 15% thresholds in one swoop and raising questions about disclosure requirements.
While LVMH and its Bernard Arnault, its chairman, said their stake was for a long-term investment and didn’t plan a takeover, Thomas has suggested that if Arnault wanted to be friendly, he should withdraw his stake. However, LVMH said it may seek additional shares.
Meanwhile Autorite des Marches Financiers (AMF), which regulates the French bourse, reported last week that it would investigate how LVMH built it shareholding. Jean-Pierre Jouyet, an AMF chief said Friday the agency would open a probe “into the conditions under which this entry (into Hermès’ capital) was done.”
LVMH welcomed news of the investigation, stating it would prove its acquisition of a slice of Hermès’ capital was within the rules.
In another twist in the story, Thomas also denied today a rumor that Compagnie Financiere Richemont, the luxurygood giant that owns Cartier, had a 4.9% stake in Hermès.
While analysts greeted the Hermès’ earnings report as a positive sign that the luxury market was indeed rebounding, some also cautioned about the year ahead.
“Even with a decline of almost 30% in recent weeks following the announcement of a 17% stake in the company by LVMH chairman Bernard Arnault, Hermès shares are still overvalued, in our opinion,” said Paul Swinand, analyst for Morningstar. “While we are fans of the company’s brands and high operating margins, we believe investors should be cautious, since next year, comparable-sales gains will be difficult to lap.”