Hermes Raises 2010 Forecast as Quarterly Sales Surge

Hermes Raises Full-Year Forecast
LVMH, the world’s largest luxury-goods maker, announced Oct. 23 it held a 14.2 percent stake in Hermes and derivative instruments for another 2.9 percent that it has since exercised. Photographer: Antoine Antoniol/Bloomberg

Hermes International SCA, the French luxury-goods maker in which LVMH Moet Hennessy Louis Vuitton SA holds a stake, raised its full-year revenue forecast after third-quarter sales surged 31 percent.

Revenue may climb about 15 percent in 2010, excluding currency swings, assuming that “solid” sales growth continues in the fourth quarter, Hermes said today in a statement, revising an Aug. 31 forecast of 12 percent growth. Sales increased to 590.1 million euros ($818.4 million) from 452.1 million euros a year earlier, the Paris-based company said.

Hermes’s sales of leather goods rose 32 percent as more shoppers in Asia picked up handbags such as the company’s Birkin model. Sales of luxury goods may climb this year to the highest level since 2007 after the worst year on record, consulting firm Bain & Co. estimates. Revenue at PPR SA’s Gucci Group increased 27 percent in the third quarter and sales of fashion and leather goods at LVMH rose 26 percent.

Hermes’s third-quarter sales growth “was well ahead of our forecasts, confirming the strong sales momentum recently reported by peers,” Rogerio Fujimori, an analyst at Credit Suisse Group AG in London, wrote today in a note. He rates Hermes “underperform.”

The shares advanced 11.70 euros, or 7.6 percent, to 166.05 euros in Paris trading. They have gained 78 percent this year, giving the 173-year-old company a market value of 17.5 billion euros.

LVMH Stake

LVMH, the world’s largest luxury-goods maker, announced Oct. 23 it held a 14.2 percent stake in Hermes and derivative instruments for another 2.9 percent that it has since exercised. LVMH later said it may increase its holding, depending on the circumstances. The company has said it doesn’t intend to seek a board seat or control.

LVMH’s investment “changes nothing,” Hermes Chief Executive Officer Patrick Thomas said today on a conference call. Hermes’s founding family, which controlled about 73 percent of the bag maker as of Oct. 28, is “serene, unified and vigilant” and is considering its options, the CEO said.

Hermes’s controlling shareholders want LVMH to withdraw from its capital, Le Figaro reported Nov. 3, citing family member Bertrand Puech. The Hermes family doesn’t need a poison pill defense, Thomas said today.

No Buybacks

Hermes had no LVMH shareholders as of three weeks ago, Thomas said. The company is confident the Autorite des Marches Financiers will determine the legality of LVMH’s stake, he said.

The AMF, France’s stock market regulator, is investigating how LVMH built up its investment in Hermes to determine if securities rules were breached, AMF Chairman Jean-Pierre Jouyet said Nov. 5. LVMH said at the time it “scrupulously respected the applicable rules.”

The Hermes Group did not buy back any shares during the first nine months of 2010, other than shares traded under the liquidity contract, the company said.

The quarterly sales increase was driven by higher sales at the company’s own stores, Hermes said. Wholesale revenue continued to improve and all Hermes business sectors delivered growth, the company said.

Over the full year, the underlying operating margin will improve by “one or two” percentage points, depending on currency trends, Hermes predicted. The bag maker will introduce “moderate” price increases from 2011, Thomas said. Hermes doesn’t need to grow by acquisition and has no plans to make a major purchase at the moment, he added.

Revenue from silk ties and scarves climbed 38 percent in the quarter. Apparel and fashion accessories sales jumped 25 percent. Revenue from watches rose 47 percent, perfume sales grew 25 percent and tableware sales gained 12 percent.

Revenue increased 24 percent in Europe, led by France, and 31 percent in the Americas. Sales jumped 21 percent in Japan and surged 52 percent in the rest of the Asia Pacific region.

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