Hermes Profit Rises as Bag Maker Copes With Paris Attacks

  • Operating margin widens to 31.8 percent from 31.5 percent
  • Luxury maker needs to react to lots of risks, CEO Dumas says

French luxury handbag maker Hermes International SCA reported full-year profit that beat analysts’ estimates even after the November terrorist attacks in Paris damped tourist spending in its home market.

Operating profit rose 19 percent 1.54 billion euros ($1.7 billion) on an adjusted basis, the Paris-based company said Wednesday in a statement. Analysts predicted 1.52 billion euros, based on the average of 16 estimates. The margin widened to 31.8 percent, after the company had warned profitability would be close to 2014’s 31.5 percent because of adverse currency shifts.

“In a world where there are a multitude of risks and uncertainties, the ability to be able to react and adapt according to events remains important,” Chief Executive Officer Axel Dumas said on a call with reporters.

Fewer tourists are shopping in Europe, following the terror attacks last year in Paris -- a situation that’s been aggravated by Tuesday’s bombings in Brussels, which killed at least 31 people. Hermes said sales in France rose 6 percent, faring “remarkably well” despite the slowdown after the Nov. 13 events in Paris.

The stock rose 1.8 percent to 317 euros as of 9:11 a.m. local time.

Luxury companies also face slowing demand in China, a slump in Hong Kong and Macau, and subdued consumption in the U.S.

Hermes is benefiting from two new productions sites in France, which are boosting its supply of handbags and other leather goods. Earnings were also buoyed by sales in Japan, which has seen an influx of Chinese tourists. Still, the company kept its guidance for 2016, saying growth could be below its medium-term goal of 8 percent growth at constant exchange rates due to global economic and political risks.

The company plans to raise prices about 3.5 percent this year in Europe, in line with production costs, Dumas said. He said it was too early to give a margin forecast or comment on sales growth.

Hermes lowered its sales outlook for a second year in February, predicting currency-neutral growth at less than half the level of the start of this decade. The company’s fourth-quarter revenue increase was the weakest in six years.

Hermes also said it plans to pay a dividend at 3.35 euros a share.

The luxury market will expand about 2 percent in 2016, according to MainFirst Bank AG. The maker of 4,200-euro saddles is targeting revenue of 6 billion euros by 2020.

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