Hermes Sales Growth Set to Slow as Economy Crimps Spending

Hermes International SCA forecast slowing revenue growth in 2015 as economic and geopolitical tumult weigh on luxury-goods spending.

The French maker of $10,000 Birkin handbags said Thursday it’s projecting sales growth of 8 percent this year at constant exchange rates, below the mid-term annual target for a 10 percent increase that it reiterated as recently as November. Hermes shares fell as much as 2.1 percent in Paris.

The guidance “is sobering,” said Luca Solca, an analyst at Exane BNP Paribas in London. While Hermes has “strong brand growth momentum,” he said, “we wonder if market expectations and the share price have possibly gone ahead of themselves.”

Hermes has weathered slowing luxury growth better than many of its peers as high prices, limited supply and distribution help reinforce its elitist appeal. Sales excluding currency moves rose 9.6 percent in the fourth quarter, the company also said Thursday, led by gains in its own stores.

The shares fell as much as 6.3 euros to 287.95 euros and traded at 288.5 euros as of 10:04 a.m. in the French capital, giving the company a market value of 30.5 billion euros.

Unfavorable currency swings, particularly the weakness of the Japanese yen, hurt profitability last year, according to Hermes, which will publish earnings figures on March 25. The current operating margin was probably between 31 percent and the record 32.4 percent achieved in 2013, a spokeswoman said. In November, Hermes said the measure may narrow “slightly.”

Higher Sales

Quarterly revenue rose to 1.22 billion euros ($1.38 billion) in the final three months of the year, just shy of the 1.23 billion-euro median of analysts’ estimates.

An 8.9 percent gain in Asia-Pacific sales, excluding Japan, was “impressive, given the disruption caused by the Hong Kong protests in the period,” said Mario Ortelli, an analyst at Sanford C. Bernstein in London.

While sales trailed analysts’ estimates in France, growth accelerated in the rest of Europe, exceeding estimates. Revenue growth was strongest in the Americas and Japan. Leather goods and saddlery also performed well, though watches tumbled more than predicted, hurt by destocking in China.

Annual sales rose 11 percent at constant exchange rates.

LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury-goods maker, began unwinding its 23 percent stake in Hermes in December to settle a four-year dispute with its rival’s biggest shareholders for accumulating the stock without their knowledge. LVMH Chairman Bernard Arnault and his family now own less than 10 percent of Hermes, according to Bloomberg data.

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