Hermès Q2 Sales Slow, Hit by Currency Exchanges

In What's New, Industry News by Jeff Prine

"Once upon a time in the Wild West of Paris"...Hermès interprets Western

“Once upon a time in the Wild West of Paris”…Hermès interprets Western

Paris— Hermès International SCA reported today that its second quarter sales trailed estimates as the weakness of the yen and a higher Japanese sales tax weighed on growth, sending its shares down the most since April.

For the quarter ended June 30, Hermès posted a new revenue increase of 5.8% to 963.4 million euros (about $1.3 billion), missing analysts’ predictions for 971 million euros. Excluding currency fluctuations such as the weakening yen, sales would have increased 9.6%, but slowing from 10.1% in the first quarter.

Americas Sales Slow

Hermès said its first-half operating margin should be “close” to 32.4% and “slightly lower” than the 33.1% it reached in second quarter 2013. Previously, the luxurygoods house has forecast that its 2014 profit would be impacted by the yen.

Sales in Japan, one of its biggest markets, plummeted to 1.6% from 21.7% in the previous quarter when trading got a boost from price increases and advanced purchases ahead of a VAT hike on April 1.

Hermès CEO Axel Dumas said he expected overall sales growth at constant currencies in Japan to reach 7% this year against 6.5% last year, noting that first quarter comparisons were an anomaly.

In the Americas, revenue slowed down to 7.9% from 17.9% in first quarter but Dumas said the slowdown was mainly due to a high comparative basis.

“Growth in Japan and the United States was a little softer than expected,” wrote Eva Quiroga, luxurygoods analyst at UBS London.

While sales in mainland China rose 16% at constant exchange rates, Hermès added that tourists purchases in Europe continue to be soft and that a sales drop in Hong Kong was unlikely despite luxury brands’ concern over the city’s attempt to restrict the entry of Chinese tourists.

By division, leathergoods division from an increase in production at Hermès’ new facilities, but sales growth edged down to 13% overall in the first half, down from 15.5% in the previous three months.

Watch sales also were down 7% year-on-year at constant exchange rates in the first half and down 12% in the second quarter alone as retailers continued to keep stocks down in China.

Hermès reports its second quarter earnings on August 29.

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