Hermès beats forecasts and raises FY targets

ANALYSIS_ Hermès raised its full-year targets after beating quarterly forecasts on Thursday, driven by a strong demand across the board and in spite of the slowdown in China, one of Hermès leading markets. “We are seeing growth in all of our

divisions," Hermès’ Chief Executive Axel Dumas told Reuters in an interview, saying only that sales growth was slower in watches.

Full-year sales growth should slightly exceed its mid-term growth target of 10 percent, the company said, and recurring operating income will increase slightly faster than revenue.

“Demand for Hermès items remains strong,” Hermès said in a statement released Thursday. “In light of the sales achieved in the first half of the year, consolidated sales at constant rates could slightly exceed the mid-term growth target of 10 percent.”

Leather-goods sales advanced 12 percent, accelerating from the first-quarter’s 7.3 percent gain, as Hermès was better equipped to serve Asian demand after opening two new workshops last year. The company expects production capacity to increase steadily throughout 2013.

As the French luxury goods company is getting closer to reaching last year’s record of 32.1 percent for its full-year operating margin, having previously predicted a fall, all looks have been posed on Dumas. “We are going to get close to it,” Hermès top executive said, declining to extrapolate or further comment on this matter.

Hermès surpasses estimates and raises FY target

“Management tends to be conservative with forward looking statements, so you can usually add some to the outlook,” said to 'BusinessWeek' Rey Wium, an analyst at Renaissance Capital in Johannesburg. While the earnings were “overall better than expected,” revenue growth of just 3 percent for watches reflects on the general Swiss watch market, he said.

Overall, Hermès posted a 16 percent rise in second-quarter sales at constant exchange rates, beating analysts’ consensus forecast of 13.5 percent and a 12.8 percent rise in the first quarter.

This compares to the 9 percent increase in sales for the second quarter expected by JP Morgan (13 percent at constant exchange rates).

The American private bank forecast 889 million euros in sales for the quarter, affected by an adverse effect of exchange rates over the period. Analysts at JP Morgan had upgraded from 205 to 214 euros a stock on 10 July issue, keeping their ‘underweight’ calification on the stock.

The trading update lifted company shares 2.6 percent to 257.7 euros, valuing the French luxury goods maker at 26.6 billion euros.

Shares in Hermès International rose 4.5 percent on Thursday right after the results were released, closing the session up by 2.1 percent after Nomura upgraded its recommendation on the stock to ‘buy’ from ‘neutral’.