Published April 22, 2013
French luxury brand Hermes on Monday promised sales of leather goods and watches should improve later this year after growth undershot forecasts in the first quarter, partly depressed by a crackdown on gifts for Chinese officials.
Hermes, known for its 13,000-euro Birkin leather bags, generated first-quarter revenue of 856.8 million euros ($1.12 billion), up 12.8% at constant currencies, ahead of analysts' expectations of 11%.
Much of the boost came from accessories such as belts and gloves, as well as shoes and ready-to-wear clothing, which together saw an 18% revenue rise in the first quarter.
But Hermes's overall performance slowed from the same period last year when revenue rose 17.6% as growth in sales of leather bags roughly halved from the fourth quarter to 7%, a drop it blamed on lower deliveries from its workshops.
The company's trading update is the latest sign that weaker demand from China and depressed consumer spending in Europe have triggered a slowdown in the luxury goods industry.
"It was a problem with deliveries as production was weak in January and February but our sales growth should stabilize to about 8-9% this year,'' Hermes Chief Executive Patrick Thomas told Reuters in an interview.
Still, for comparison, sales at archrival LVMH's fashion and leather arm were up 3% in the first quarter at constant currencies, down from 14% last year.
Hermes shares, which have gained 10% so far this year, were up more than 1% in morning trade at 251.95 euros.
Thomas said the company in January had raised prices by 3-4% on average on all products sold in the euro zone. Hermes watch sales decline 5%, hit by a slowdown in the Chinese market, compared with a 27% surge in the same period a year ago.
"The depression is momentary,'' Thomas said about the company's watch sales, which he singled out as having been effected by the Chinese government's crackdown. Watches have become a symbol of conspicuous consumption in China at a time when new president Xi Jinping has called for a renewed fight against corruption.
"We expect a revival at the end of the year,'' Thomas added, though he gave no details on why sales would improve other than pointing to cyclical factors.
He said the Hermes's investment in Swiss watch case maker Joseph Erard, which allowed it to lift its holding to 51% from 32.5%, was part of Hermes's strategy to become more vertically integrated.
Asked if Hermes could also raise its stake in watch maker Vaucher from its current level of 25%, Thomas said: ``We will raise it surely one day but we are not in a hurry.''
The company did not give a financial forecast for the year. ($1 = 0.7644 euros)