By Dominique Patton
PARIS, July 29 (Reuters) – Hermes reported a slight acceleration in growth in the second quarter on Wednesday, as the impact from the Middle East conflict eased and tourism recovered in France.
The French luxury giant’s results failed however to impress investors, who are looking for decisive signs of a broad recovery in the luxury segment, and shares fell 4% in early trading on Wednesday.
Second-quarter sales of products including handbags, silk scarves and perfume rose by 6.7% in currency-adjusted terms to €4.1 billion ($4.67 billion), Hermes said, in line with expectations and up from 6% growth in the first quarter.
OPERATING PROFIT MARGIN BETTER THAN EXPECTED
The report came after similarly muted results from industry bellwether LVMH on Monday. Gucci owner Kering, on the other hand, positively surprised the market by posting better-than-expected results at its biggest brand Gucci, a sign CEO Luca de Meo’s turnaround push is starting to work.
While Hermes’ operating profit margin of 41% was better than expected, the relatively modest sales improvement is likely to grab investors’ attention, analysts said.
“We think investors will focus this morning on the top-line growth, and Hermes’ slower pace of reacceleration vs peers,” analysts at JPMorgan said in a note to clients.
MIDDLE EAST CRISIS DENTS BUYING
Hermes, which carefully controls production and sales to maintain exclusivity, weathered the COVID-19 crisis better than peers, and had been the most resilient luxury group in a years-long industry-wide slowdown.
Nonetheless, growth fell below high single-digit percentages in the first quarter after conflict in the Middle East dented shoppers’ appetite from Dubai to Paris.
The impact of the conflict weakened in the second quarter, the group said, while growth in France increased by 6% from a drop in the first three months of the year.
“In the second quarter, we are seeing improved momentum in our Paris stores,” said CEO Axel Dumas, adding that tourist traffic in the country had improved.
Shares in Hermes fell as much as 4% in early trade, and were down 3.2% at 1,642 euros at 0734 GMT.
LEATHER GOODS SEES GROWTH OF 10%
Hermes, which caters to the ultra-wealthy with handbags over $10,000, said the leather goods division that accounts for almost half its revenues grew 10% in the quarter, slightly below a Visible Alpha consensus of 10.8%.
In Asia-Pacific excluding Japan, Hermes’ biggest region by sales, revenue grew at 2.5% in currency-adjusted terms, steady from the first quarter.
“I see the Chinese market stabilizing, but I do not yet see a fundamental rebound,” Dumas told reporters, adding that despite the “uncertain” situation, he was nevertheless happy with the result.
“We are holding up well in an environment that, due to macroeconomic factors, isn’t exactly the most dynamic right now,” he said.
Hermes shares have dropped 20% since the start of the year.
($1 = 0.8773 euros)
(Reporting by Dominique Patton; Writing by Lisa Jucca; Editing by Jan Harvey and Louise Heavens)
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