Hermes Sales Exceed Estimates on Japan Buyers’ Purchases

Hermes International SCA (RMS), the French maker of Birkin bags, reported first-quarter sales that beat estimates and outperformed growth at competitors, underscoring the appeal of the most exclusive luxury goods.

Revenue jumped 10 percent to 943.5 million euros ($1.31 billion), Paris-based Hermes said today in a statement. Analysts predicted 921 million euros, according to the median of nine estimates compiled by Bloomberg. Sales excluding currency shifts rose 15 percent, accelerating from last year.

Hermes is adding production facilities in France and opening more stores as shoppers splurge on its $10,000 handbags and silk scarves even as industry sales slow. Italian cashmere clothier Brunello Cucinelli has forecast revenue will rise at least 10 percent this year, almost double Sanford C. Bernstein’s estimate for luxury-market growth, because super-wealthy consumers continue to seek the most exclusive products.

Hermes posted “a very impressive start to the year,” Eva Quiroga, an analyst at UBS AG in London, said today in a note. She has a neutral recommendation on the stock.

Hermes rose as much as 1.3 percent and was up 0.5 percent at 255.95 euros at 1:23 p.m. in Paris. The stock has fallen 2.9 percent this year, valuing the saddle-maker part-owned by rival LVMH Moet Hennessy Louis Vuitton SA (MC) at about 27 billion euros.

Asia Advance

Sales on a constant-currency basis surged 22 percent in Japan, exceeding estimates, as Hermes raised prices and customers splurged in advance of a sales-tax increase. Revenue advanced 18 percent in the rest of Asia and at the same rate in the Americas. In Europe, sales rose 7.9 percent in a “difficult economic environment,” the company said.

Revenue growth will weaken in Japan from the second quarter, Deputy Chief Executive Officer Patrick Albaladejo said in a phone interview, partly because of this month’s 3 percentage point increase in value-added tax. Hermes doesn’t expect Japanese sales to fall in 2014, he said.

In the U.S., Hermes has the potential to deliver “consistently high double-digit growth” because of growing demand for authentic and discreet products, Albaladejo said. This, plus the return of economic growth in the country, “is clearly a driver for the future,” he said.

2014 Guidance

Profitability is likely to shrink this year from a record in 2013, weighed down by the weakness of the Japanese yen, Albaladejo also said, repeating an earlier forecast.

Total annual revenue growth of about 10 percent remains a “milestone,” the executive said. First-quarter sales advanced 13 percent last year at constant currencies.

Demand was strongest for ready-to-wear and fashion accessories, while leather-goods and saddlery benefited from manufacturing sites opened in 2012, Hermes said.

While the company’s latest watch designs were well received at the Basel trade fair, sales in the category fell in a “perennially difficult market,” it said.

Hermes’s sales growth in the quarter compares with a 0.3 percent gain at Gucci, whose owner Kering SA is introducing more expensive products and upgrading stores to win back customers who are switching to brands they perceive to be more exclusive.

LVMH this month reported a 9 percent increase in first-quarter fashion and leather-goods sales, the unit’s fastest organic growth in two years. Prada SpA (1913) forecast slowing same-store sales growth in the financial year through January, citing a strong euro and weakening demand in China.

Hermes may make acquisitions, though this will only be to secure supply, Albaladejo said.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Thomas Mulier, Paul Jarvis

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