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Hermes Says 2012 Profitability at Record as Sales Up 23%

Hermes Says 2012 Profitability at Record as Sales Rise 23%
A pedestrian walks past an Hermes store, operated by Hermes International SCA, in Beijing. Photographer: Tomohiro Ohsumi/Bloomberg

Hermes International SCA said 2012 profitability reached a record level as sales rose 23 percent, driven by demand for its $10,000 Birkin bags in markets across the globe.

Revenue climbed to 3.48 billion euros ($4.66 billion), the Paris-based company said today in a statement. The average of 17 estimates compiled by Bloomberg was 3.42 billion euros. Excluding currency swings, sales rose 16 percent. Hermes’s forecast was for growth of more than 13 percent.

For 2012, “given the excellent performance in the fourth quarter, the operating margin is expected to be slightly above the all-time high achieved in 2011,” the company said.

Growth at the maker of Kelly bags is in contrast to larger rival and Hermes stakeholder LVMH Moet Hennessy Louis Vuitton SA, which last month reported stagnant growth at its fashion and leather-goods unit. Hermes exerts more control over sales by limiting the supply of its handbags amid strong demand, according to Exane BNP Paribas analyst Luca Solca.

“Hermes ends the year on a perfect note,” CA Cheuvreux analyst Thomas Mesmin said in an e-mailed note today. The expected profitability for the year is “remarkable,” he said. Hermes previously expected operating margin to be between the 2010 level and the record high of 31.2 percent achieved in 2011.

Hermes shares rose as much as 1.9 percent in Paris and were up 1 percent to 247.50 euros as of 9:09 a.m. in the French capital.

While industry growth may not accelerate this year, the so-called absolute luxury segment where Hermes competes is the fastest-growing part of the market and will outperform the rest until at least 2014, Bain & Co. estimates.

$10,000 Birkin

Hermes, which in November raised its forecast for 2012 organic revenue growth to more than 13 percent, has met or exceeded its own annual sales target each year since at least 2007 as demand for products like its Birkin soars. The company opened two new workshops last year in France due to “persistently strong demand” as leather-goods sales rose 12 percent.

Revenue growth was driven by a sales increase of 25 percent in Asia, excluding Japan, as the retailer opened new stores and expanded existing ones, Hermes said. Revenue rose 15 percent in Europe and gained 14 percent in the Americas, the company said.

Perfume Revenue

Silk-and-textiles sales grew 16 percent, while ready-to-wear and fashion accessories surged 22 percent. Perfume revenue climbed 14 percent, while watch sales advanced 17 percent. Other products, including jewelry, increased 45 percent, Hermes said.

Fourth-quarter sales advanced 23 percent to 1.04 billion euros, Hermes said. Analysts predicted 995.8 million euros. Currency fluctuations had a positive impact of 178 million euros on sales in 2012, the company said.

“Hermes posted very solid fourth-quarter sales,” Leopold Authie, a Paris-based analyst at Oddo & Cie., said by e-mail, adding that he will “revise up” his expectations for the year.

Hermes, a maker of silk scarves, will pay an interim dividend of 1.50 euros per share on March 1, it said.

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