Hermes first-half earnings soar 20 per cent to €748 million

Hermes International, the French luxury handbag maker, reported a 20 percent increase in first-half earnings as sales growth accelerated in Japan and kept its forecast for the year unchanged even as China's economic slowdown weighed on sales of luxury handbags there.

Operating income grew to €748 million, Paris-based Hermes said Friday in a statement. Analysts predicted €737 million, according to the median of 13 estimates compiled by Bloomberg. Sales rose 21 per cent to €2.3 billion.

Luxury sales are surging in Japan as more wealthy Chinese choose to shop there rather than in Hong Kong following protests in the island city and a clampdown on lavish spending back home.

Hermes’s Japanese revenue climbed 20 per cent in the half at constant exchange rates, compared with a 7 per cent increase in the rest of Asia as Hong Kong was “difficult,” it said.

“Hermes is the most defensive name in the luxury space,” Luca Solca, an analyst at Exane BNP Paribas, said via e-mail.

The company’s efforts to starve demand with long waiting lists mean its growth and margin performance “is more stable than peers.”

Hermes fell 0.8 per cent at 9.18am in Paris.

The maker of Kelly bags and silk scarves reiterated its mid-term target of 8 per cent revenue growth at constant exchange rates and said the operating margin will narrow from last year’s 31.5 per cent because of currency fluctuations. Solca estimates that profit measure will widen to 31.8 per cent.

Hermes follows luxury shoemaker Salvatore Ferragamo in maintaining profit guidance despite financial turbulence worldwide - the biggest of which is China’s economy.

Bloomberg