Hermes posts solid Q2 sales, with China demand resilient

An Hermes store in Beijing, China. Sales in China kept on growing at a double-digit rate as in the past few years, Hermes chief Axel Dumas said.
An Hermes store in Beijing, China. Sales in China kept on growing at a double-digit rate as in the past few years, Hermes chief Axel Dumas said.PHOTO: BLOOMBERG

PARIS • Hermes International expects first-half operating profits close to the record level reached last year, as the luxury handbag maker posted solid second-quarter sales that augured well for the rest of the luxury sector.

Hermes' strong sales increase in China shows that demand for luxury goods in that country has remained resilient despite slower economic growth, and in spite of the current trade tensions between China and the United States.

Hermes, whose Birkin handbag is worth more than a small car, said sales rose 7.2 per cent to €1.46 billion (S$2.33 billion) for the three months through June.

Sales rose 12 per cent at constant exchange rates, up from 11 per cent during the previous quarter. Analysts expected a 10 per cent increase.

The firm said adverse currency swings represented a negative effect of €165 million on its top line.

Sales in China kept on growing at a double-digit rate as in the past few years, chief executive Axel Dumas told reporters.

Demand in China had not been affected by macroeconomic uncertainties, he said, adding that the current Sino-US trade row would not have an immediate impact on Hermes.

"We have customers who travel," he said. "A trade war would be bad for everybody. I'd prefer there wouldn't be a trade war, but I don't think we will be the first company to be hit."

Given the good health of the Chinese market and solid growth elsewhere, the company expects its operating profitability in the first half of this year to be close to the record level reported in the first half of last year.

Earlier this month, British luxury goods firm Burberry reported higher quarterly sales growth, and Hermes' figures bode well for other luxury goods makers like behemoth LVMH, Gucci owner Kering and German fashion house Hugo Boss, which all depend on Asian markets.

Hermes will report financial results for the first half of the year on Sept 12. Profitability in the first half will be further boosted by the capital gain Hermes made on the sale of its Hong Kong store, the firm added.

Mr Dumas said Hermes had cut its prices by 4 per cent in China on July 1 after the Chinese government cut tariffs on imports.

Hermes, which derives the biggest chunk of earnings from leather goods, also posted strong growth in other divisions including in its fashion lines, perfumes and jewellery business.

Hermes shares hit a record high of €609.45 in May and are up by around 20 per cent so far in 2018.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 21, 2018, with the headline 'Hermes posts solid Q2 sales, with China demand resilient'. Print Edition | Subscribe