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Hermès manages to weather China-US price war, beating analysts’ estimates

By Angela Gonzalez-Rodriguez

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Business |ANALYSIS

Hermès has just toasted to a great first half of the year, unveiling H1 profits circa the record earnings it generated in the same period last year. The French luxury conglomerate reported sales up by 7.2 percent to 1.46 billion euros in the three months to July, and 12 percent on a constant currency basis, comfortably surpassing the market expectations.

One region stole the limelight from the results presentation, as Hermès has been caught amidst the trade war between China and the U.S. over trade tariffs. However, the retailer’s chief executive Axel Dumas said that demand in China had not been affected by macroeconomic uncertainties, and that the unravelling trade war would not have an immediate impact on the business.

“We have customers that travel,” Dumas said answering question about the impact of political unrest on its trading update. “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.”

He added that Hermès dropped its prices by 4 percent in China at the start of the month when the Chinese government cut tariffs on imports.

China to remain a safe haven for luxury buyers despite rising political tensions with US

As a result, growth is still double-digit in mainland China, according to Chief Executive Officer Axel Dumas. The company is being careful on prices, reducing them by around 4 percent at the start of this month, passing on the benefit from a reduction in import duties to consumers.

Strong organic growth helped Hermès match last year’s record margins, which had a non-recurring boost from currency hedges, RBC Capital Markets analyst Rogerio Fujimori said by phone to Bloomberg.

It’s worth noting that Hermès is more insulated from luxury’s boom-and-bust cycles than some of its peers, what coupled with the continued high demand Hermès is seeing in China, gives a positive signal for the luxury goods niche, explained to FashionUnited market sources.

“For China I really don’t see any change of pace,” Hermès’ CEO Axel Dumas said on a call with reporters. Dumas went ahead and explained that the company he leads closely monitors key indicators like real estate values and Chinese stock prices. “Our clients are much more taking into account their net worth than their revenue, so any change there we need to take care,” he added.

As a matter of fact, highlights Bloomberg, the company’s shares’ 13 percent drop in Shanghai’s CSI 300 Index this year isn’t fazing the maker of the Birkin bag. Hermès International is perceived to be weathering a decline in China’s stock market, with the luxury goods maker saying sales in the country are still growing at a rate of more than 10 percent.

Image: Hermès SoHo Shoe Salon, NYC, US. Photo Credits: Hermès Official Web

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