Hermes Keeps ‘Ambitious’ Goal as Luxury Maker Ramps Up Output

Updated on
  • Second-quarter sales slowdown in line with analyst estimates
  • Increasing production still key aim for leather-goods seller

Hermes Birkin bags in Montbron.

Photographer: Mehdi Fedouach/AFP via Getty Images

Hermes International SCA kept what it called “an ambitious goal” for medium-term revenue growth as it ramps up production of goods such as $10,000 Birkin bags.

The company expects to weather “growing economic, geopolitical and monetary uncertainties around the world,” it said Friday as it reported second-quarter growth that matched analyst estimates. The shares were little changed in early Paris trading.

Increasing production is a key aim for Hermes as it seeks to reduce waiting lists for its signature handbags. After being largely insulated from a slowdown in luxury consumption in 2015 and 2016, the company is trying to respond to a rebound in demand for high-end goods by training up leather workers and adding new sites. Two workshops opened in June, adding 120 jobs in France, Chief Executive Officer Axel Dumas said on a call with journalists.

Second-quarter sales rose 8.3 percent excluding currency shifts, slower than the first quarter’s 14 percent jump. Analysts had predicted growth would weaken as Hermes ramped up leather-goods production in the same period last year, making for tougher comparisons.

Dumas predicted that the main leather-goods unit should post growth “consistent with the average rate around 10 percent” in 2017. The division boosted revenue 9.7 percent at constant exchange rates during the second quarter.

Watches returned to positive territory in the quarter, up 2.9 percent excluding currency. Analysts had predicted a 3.5 percent decline. Dumas said the improvement most likely resulted from the brand’s retailing efforts as well as an easy base for comparison rather than a sign that the watch industry was bouncing back. 

“I’m afraid the watch industry and our watch business will continue to be lukewarm, even if we are maintaining sales in our stores,” the CEO said.

Rival Swatch Group AG, the maker of Omega and Tissot timepieces, said Friday it expects strong growth in the second half, adding to growing signs of recovery for the Swiss watch industry after the longest slump on record.

(Updates with CEO comments starting in third paragraph.)
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