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Hermes Sales Trail Estimates as Japanese Revenue Declines

Hermes Quarterly Sales Trail Estimates
An employee places a Hermes Arceau watch into a showcase ahead of the opening of a luxury watch fare in London. Watches was an area of weakness with sales of the category declining 15 percent in the quarter, hurt by weaker wholesale demand in China, Hermes said. Photographer: Simon Dawson/Bloomberg

July 18 (Bloomberg) -- Hermes International SCA, the maker of Kelly handbags, reported second-quarter sales that trailed estimates as the weakness of the yen and a higher Japanese sales tax weighed on growth. The shares fell the most since April.

Revenue climbed 5.8 percent to 963.4 million euros ($1.3 billion), Paris-based Hermes said today in a statement. Analysts predicted 971 million euros, according to the median of 11 estimates compiled by Bloomberg. Sales excluding currency swings rose 9.6 percent, slowing from the first-quarter.

The first-half operating margin should be “close” to 32.4 percent and “slightly lower” than the 33.1 percent reached in the same period last year because of the currency effect, Hermes said. The company, which is expanding French production and global distribution, said in April the investments plus the weakness of the Japanese yen would weigh on 2014 profitability.

While sales trailed consensus estimates in all regions except Asia-Pacific, the “all-important” leather-goods and saddlery unit matched the 10 percent gain predicted by analysts, said Exane BNP Paribas analyst Luca Solca. “Management hints that increased capacity should continue to support growth.”

Hermes shares fell 2.7 percent to 260.50 euros at 9:17 a.m. in Paris, giving the silk-tie maker a market value of 27.5 billion euros.

Know-How

In addition to Japan, where sales fell 6.3 percent, watches showed weakness, with sales in that category declining 15 percent, hurt by lighter wholesale demand in China, said Hermes, which is partly owned by LVMH Moet Hennessy Louis Vuitton SA.

At constant exchange rates, second-quarter sales rose 1.6 percent in Japan, while revenue from watches declined 12 percent. Hermes’s first-quarter sales rose 15 percent on the same basis as shoppers in Japan splurged ahead of April’s 3 percentage-point increase in value-added tax. Hermes said at the time it didn’t expect Japan sales to fall in 2014.

Earlier this month, Burberry Group Plc, the U.K.’s largest luxury-goods maker, reported a 9 percent increase in quarterly retail revenue. Chinese tourist transactions in Europe grew in the period, while Asia-Pacific sales rose by a double-digit percentage, said London-based Burberry, easing concern that demand for luxury goods is waning.

Hermes reports first-half earnings on August 29.

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, David Risser

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