PARIS • French luxury goods group Hermes yesterday said it expected operating profitability in the first half this year to be close to the peak level of 33.9 per cent of sales achieved in the first half of last year, thanks to foreign exchange gains.

Hermes, known for its US$10,000 (S$14,000) Birkin bags and US$400 printed silk scarves, made the forecast after sales growth slowed in the second quarter, broadly in line with expectations, and reflecting mostly challenging year-ago comparables.

Chief executive Axel Dumas told a conference call that sales momentum remained "quite good" with sustained demand for Hermes' Birkin, Kelly, Constance and Lindy bags, and robust demand for shoes, while the silk business continued to rebound. "Everybody is quite optimistic for the future," he said.

In China, Hermes sales were still growing in double digits for the quarter, while Europe benefited from a rebound in tourist flows, which were particularly strong in Italy as well as in London thanks to a weaker pound, he said. France was broadly flat, while growth in the United States also slowed due to high year-ago comparisons.

Hermes reported an 8.3 per cent rise in revenue at constant exchange rates to €1.36 billion (S$2.16 billion), compared with 11.2 per cent growth in the first quarter. Analysts had forecast about 9 per cent growth on average.

Sales growth at its leather goods division, comprising 50 per cent of group sales, slowed to 9.7 per cent from the 15 per cent rise achieved in the first quarter. For full-year 2017, Mr Dumas said he expected sales growth at the leather goods division to be close to its average annual growth of 10 per cent.

The luxury goods industry has suffered in the past couple of years as demand in China slowed and attacks in France deterred some tourists from travelling to Europe.

A recovery in tourism in Europe and stronger Chinese consumption are expected to lead a rebound in the luxury sector this year, the Bain consultancy predicted in May.

REUTERS