Hermès 2012 Profit Beats Expectations and Records

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Vive le sport! Hermès' spring campaign

Vive le sport! Hermès’ spring campaign

Paris—In marketing terms, Hermès enjoys a place at the top as “absolute luxury.” That rarified niche is proving lucrative, too, despite various economic problems that plague nations around the globe.

Last week, the French luxurygoods company posted a record profit in addition to record sales for 2012.

Hermès’ net profit jumped 25.5% go 740 million euros (about $954 million), well ahead of analysts’ average expectation for 710 million to 720 million euros.

Operating profit for 2012 rose 26.4% to 1.12 billion ahead of analysts’ estimate for 1.09 million. The company’s operating margin ended the year at 32.1%, the highest since the company went public in 1993.

In February, Hermès reported a 22.6% rise in sales last year to 3.48 billion euros (about $4.66 billion). The sales figure exceeded analysts’ expectations by of about 3.42 billion euros.

Asia continues to be the strongest market for the company, with sales rising 28.6% last year, mostly in China. Hermès opened a store in Taiwan and one in China and expanded six other outlets.

In the Americas, where the sales network was increased, sales rose by 14%. Europe grew by 15% “with a positive contribution from nearly all countries.”

Sales at the group’s own stores grew 23% at current exchange rates and by 16% at constant exchange rates. In 2012, Hermès opened two new branches and renovated or enlarged 12 others.

Likewise, all categories that Hermès makes had strong performances last year, too. Leathergoods and saddlery was up 12% and the company opened two new workshops in Charente and Isère to handle the volume.

Limit for Hermès? Leathergoods Manufacturing

The ready-to-wear and accessories division posted a 22% sales gain “from the dynamism of the latter and from the inspiration of the ready-to-wear collections.”

Its silks & textile, which include the company’s iconic scarves, had a 16% increase helped by new colors and materials. Watches were up 17% and perfumes were up 14%.

Other Hermès sectors (up 45%) registered an exceptional surge. Hermès jewelry was driven by the success of its creations and the presentation of its second Haute Bijouterie collection.

According to Patrick Thomas, chief executive, Hermès is aiming for about a 10% increase in sales for 2013, but due to “too many unpredictable factors” he called for “prudence.”

Thomas said business has been good since the start of the year except for slightly weaker sales in January since the Chinese New Year fell later this year.

“The better-than-expected profit once again demonstrates the positive momentum for Hermès and for other high-end niche brands,” said Luca Solca, analyst at Exane BNP Paribas. “The limit for Hermès is their manufacturing capacity in leathergoods. Given the bottleneck there, one could have expected higher price increases than anticipated.”

Hermès said it added more than 800 new jobs, most of them in sales and at its production facilities. At the end of 2012, the company’s workforce comprised 10,118 employees, with about 6,110 based in France.