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Hermes Raises Growth Target as China Demand Boosts Sales

Hermes Operating Profit Rises 22% as China Demand Boosts Asia
People wait in line outside a Hermes International SCA store in Hong Kong, China. Photographer: Jerome Favre/Bloomberg

Hermes International SCA, the French maker of silk scarves and leather goods, raised this year’s sales-growth target after first-half earnings beat estimates on Asian demand for luxury products.

The maker of Birkin and Kelly bags’ annual sales growth excluding currency shifts “could be around 12 percent,” it said today in a statement. The Paris-based company last month said it targeted annual revenue growth of 10 percent.

Hermes, in which LVMH Moet Hennessy Louis Vuitton SA owns a 22.3 percent stake, is seeking to tap growing demand for luxury goods in Asia, where wealthy clients continue to increase spending on items such as Birkin bags. Sales in the region, other than Japan, rose 25 percent in the half-year, led by China, Singapore and Hong Kong, the company said.

The report was “good and reassuring,” said Thomas Mesmin, an analyst at Cheuvreux in Paris. A 0.1 percentage point improvement in the operating profit margin to 32.1 percent of sales was “a very strong performance,” Mesmin said in a note.

Hermes rose as much as 4.1 percent in Paris trading and was up 2.1 percent at 228.45 euros as of 9:36 a.m. The gain erased the stock’s decline this year, which had followed surges of 47 percent in 2011 and 68 percent in 2010.

China Boom

Hermes got about 47 percent of sales from Asia in the second quarter, compared with 35 percent from Europe and 16 percent from the Americas. Sales of discretionary goods in China will grow by a compounded annual rate of 13.4 percent between 2010 and 2020 to reach $1.88 trillion as shoppers in the world’s second-largest economy become more affluent, according to data in a McKinsey & Co. report in March.

Hermes last month reported second-quarter sales rose 22 percent to 814.5 million euros ($1.02 billion), exceeding the 799.3 million-euro average of three analysts’ estimates compiled by Bloomberg.

Operating margin for the year should be between that achieved in 2010 and 2011, the company said today.

Operating income climbed to 510.9 million euros from 418.1 million euros a year earlier, higher than the 502 million-euro average of three analysts’ estimates. Net income gained 15 percent to 335.1 million euros, beating the 320.7 million-euro average of three estimates compiled by Bloomberg.

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