Hermès’ 2013 Profit a Record, But Faces Weakening Yen Ahead

In Industry News, What's New by Jeff Prine

From Hermes' Fall/Winter collection presented last month at Paris Fashion Week

From Hermès’ Fall/Winter collection presented last month at Paris Fashion Week

Paris—Hermès International SCA said today its 2013 profit margin hit an record high but the luxurygoods house expects this year’s profit will be hurt by a weakened Japanese yen.

Net profit increased 6.8% last year to 790 million euros (about $1.1 billion). Last month, Hermès reported its full year sales jumped 7.8% to 3.75 billion euros.

Decline in Profitability?

Hermès boasts one of the highest operating margins of any in luxurygoods and 2013 set a new standard: operating profit rose 8.9% to 1.218 billion euros while its operating margin grew to an all-time high, 32.4% of sales (compared to 32.1% in 2012).

While a slowdown in luxurygoods sales in China—and economic troubles in Europe—has hurt sales for Kering and LVMH, Hermès has proven resistant. Full year sales rose 16% in Asian markets excluding Japan, 14% in the Americas and 12% in Europe.

As for 2014 results, CEO Axel Dumas said: “We’re hoping for good results but there will be more convulsions. We accept there will be a decline in profitability in 2014, especially because of the decline of the Japanese yen.”

While Hermès has raised prices 10% in Japan (about 4% in Europe and between 6% and 7% in the North America) earlier this year, Hermès still has to take into account the increased cost of selling products in Japan, where a consumption tax is also due to rise next month. Not to mention, the yen was declined about 13% against the euro in the last year.

Hermès estimates its operating profit as a percentage of sales will fall to more than 27% in 2014, Dumas said.

“We are very confident, yet prudent,” he added.