Hermes reports strong sales growth, revenue up 27% in Japan

Bloomberg

Luxury goods maker Hermes International SCA reported a 22 percent increase in second-quarter sales, led by accelerating growth in Japan.

Revenue rose to 1.17 billion euros (¥158 billion), Paris-based Hermes said in a statement Tuesday, about meeting the median of 14 estimates compiled by Bloomberg. Growth of 10 percent excluding currency swings beat analysts’ estimates.

Hermes, like other luxury goods makers, is feeling the effects of slowing demand in China after years of double-digit growth. Still, the maker’s high prices and limited supply have helped cushion the blow, and the 178-year-old company is the least exposed of peers to weaker demand in Hong Kong, where it has seven stores, Sanford C. Bernstein has said.

“Japan stayed striking,” Luca Solca, an analyst at Exane BNP Paribas, said. Revenue growth of 27 percent in the country helps explain why Hermes is guiding for downward pressure on operating profitability as the company did not increase prices enough to offset the weaker yen, he said.

Japanese sales growth accelerated from the 15 percent gain in the first three months of 2015 and beat analysts’ estimates by about 10 percentage points, excluding currency swings.

While Hermes retained its mid-term goal for revenue growth of about 8 percent at constant exchange rates, the first-half operating margin will probably narrow “slightly” because of the weaker euro, the company said.

Year-ahead hedging rates mean currency shifts will narrow the operating margin by 0.5 percentage points in 2015, the company said earlier in the year.

Fewer wealthy Chinese are purchasing expensive bags and coats in Hong Kong, preferring instead to shop in Japan and Europe where they are cheaper. U.K. luxury goods maker Burberry Group PLC said last week it may try to lower its rent bill in the island city to offset a worsening slump there that drove sales growth to a two-year low. Exports of Swiss watches to Hong Kong dropped 21 percent in June, the Federation of the Swiss Watch Industry said Tuesday.

Sales in the rest of Asia-Pacific gained 6 percent, just shy of expectations and slowing from the previous quarter’s 7.7 percent increase.

Leather-goods and saddlery was the best performing product category with sales rising 15 percent on the same basis, ahead of estimates. Watches returned to growth after five quarters of declines.