Hermes First-Half Profit Rises as Asian Revenue Advances

Hermes International SCA (RMS) reiterated forecasts after reporting a 6.3 percent rise in first-half earnings as the world’s wealthiest consumers continued to seek out products like its $10,000 Birkin bags.

Operating profit reached 621 million euros ($818 million) from 584 million euros, Paris-based Hermes said today in a statement. Analysts predicted 617 million euros, according to the median of nine estimates compiled by Bloomberg. Earnings as a proportion of sales narrowed to 32.6 percent from 33.1 percent, weighed down by unfavorable exchange rates. The stock rose 1.1 percent at 9:18 a.m. in Paris to 264.50 euros.

Supply constraints and high prices have helped cushion Hermes from softening luxury demand in Asia that led Gucci-owner Kering SA and LVMH Moet Hennessy Louis Vuitton SA (MC) to report lower first-half profits. Still, the weakness of currencies such as the yen against the euro mean that the company expects this year’s operating margin to decline from a record 32.4 percent last year, Hermes reiterated.

“Hermes is the most defensive name in the luxury space: a long waiting list and a deliberate effort to starve demand and maintain a rarity effect make it so that Hermes growth and margin performance is more stable than peers,” Luca Solca, an analyst at Exane BNP Paribas in London said by e-mail.

Photographer: Lam Yik Fei/Bloomberg

Customers wait in line to enter an Hermes store in Hong Kong. Close

Customers wait in line to enter an Hermes store in Hong Kong.

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Photographer: Lam Yik Fei/Bloomberg

Customers wait in line to enter an Hermes store in Hong Kong.

Retained Objective

Hermes retained its mid-term objective of revenue growth of about 10 percent at constant exchange rates. Solca said he estimates sales growth of 12 percent in 2014 on that basis.

First-half revenue rose 7.9 percent to 1.91 billion euros, and was up 12 percent at constant exchange rates, Hermes said in July. The saddle-maker, which is adding workshops in France and stores worldwide, said at the time that the first-half operating margin would be close to 32.4 percent. LVMH owns 23.1 percent of Hermes.

The stock has gained 6.3 percent in the past 12 months, compared with a 1.8 percent decline in LVMH.

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 Kim McLaughlin, Thomas Mulier

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