As Sales Surge 23% in First Half Hermes Doubles Annual Forecast

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Paris—Reporting nearly a 23% surge in first half sales, Hermes International today doubled its revenue forecast for the year—a strong indication that the luxury goods market is reviving.

For January to June, the 173-year-old company reported $1.92 billion in sales, up 22.8% from the figure 12 months earlier. Full-year revenue may grow as much as 12%, excluding currency swings. In March, the company had forecast 5% gain.

Much of the increase could be attributed to strong sales in Asia, except for Japan, which grew by 45%. Sales also rebounded in North America and Europe, too. Sales rose 26% in the Americas and 17% in France, for example, where retailers replenished inventories.

Better Than Predicted

“The second-quarter was quite significantly better than I had expected,” said Dennis Weber, an analyst at Evolution Securities in London. “The surprise was driven by a better- than-expected performance in Hermes’s own store network, which showed underlying growth of 20 percent,” he said.

Over the year, the operating margin is expected to widen by at least 1% point compared with 2009, depending on currencies, Hermes said. The company’s stock has risen 25% this year.

“The margin increase is coming partly from the currency and partly from the product mix,” Patrick Thomas, ceo, said Tuesday.

While the company remains positive going forward, Hermes executives reported in a statement that they don’t expect growth in the second half to maintain the same pace. The second quarter was beyond expectations, leading to the higher full-year sales growth target.

However, that “is not at all disappointing,” said Antoine Belge, an analyst at HSBC in Paris, who has a “neutral” rating on the shares. “It’s still very robust.”

Accessories Sales Boost  Second Quarter Results

Sales of apparel, accessories, fragrances and watches will probably recover this year, particularly in the company’s own stores, Thomas had reported in March. Leather items as a percentage of sales will fall to 45%, he said.

Second-quarter sales rose 27% to $738 million, beating most analysts forecasts. Second-quarter revenue jumped 57% in Asia, excluding Japan, where sales gained 10%, Hermes said. Sales increased 20% in Europe and 36% in the Americas

Sales of leather goods increased 32%, while revenue from silk scarves and neckwear gained 24%, Hermes said. Apparel sales climbed 26%. Revenue rose 36% for watches and 17% for perfumes, two categories that were particularly hurt last year as stores destocked. Tableware sales slipped 2.2%.

Hermes plans to open or renovate about 20 stores this year, including a new boutique on Rue de Sevres in Paris.

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