Hermes Sales in Asia Decelerate as Hong Kong, China Take Toll

Not even Hermes International SCA is immune from slowing luxury demand.

Asian sales growth at the French maker of Birkin handbags slowed to 1.5 percent in the third quarter, excluding Japan, from 6 percent in the second quarter as anti-extravagance measures in China weighed on spending. Sales in the Americas grew just 2 percent at constant exchange rates as stock market volatility and a strong dollar curb spending by locals and tourists.

Yet, Paris-based Hermes still delivered revenue growth that matched analysts’ estimates, with total sales climbing 15 percent to 1.14 billion euros ($1.2 billion). Analysts predicted 1.15 billion euros, according to the median of 13 estimates compiled by Bloomberg. Excluding currency swings, sales climbed 7.9 percent, in line with the 8 percent estimate.

The results were “a reassuring performance from Hermes against a more difficult backdrop in Asia and Americas,” said Rogerio Fujimori, an analyst at RBC Capital Markets. “When things get tough, the best business models and most exclusive brands stand out.”

By keeping the supply of $9,400 Birkin bags limited, Hermes is weathering slowing luxury demand better than lower-priced competitors such as Burberry Group Plc, which has forecast profit to decline a second year. Having more than 40 stores in Japan also helps as the yuan was higher against the yen during the quarter, attracting Chinese shoppers. Sales in Japan rose 17 percent at constant exchange.

The stock traded 0.3 percent lower at 349.45 euros as of 9 a.m. in Paris.

Hermes reiterated its mid-term target of 8 percent annual revenue growth excluding currency swings and repeated that the operating margin will narrow from last year’s 31.5 percent because of foreign exchange moves. The forecast decline in profitability shows that Hermes didn’t raise prices enough in Japan to offset the weaker yen, according to Exane BNP Paribas.

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