February 10, 2016 / 12:45 PM / 3 years ago

Hermes warns of potential for further dip in sales growth

PARIS (Reuters) - French luxury goods maker Hermes (HRMS.PA) has yet to see its business in Paris recover from November’s deadly attacks on the city and warned of a potential further slowdown in global sales this year.

A handbag is on display at Hermes shop during a press preview in Russia's landmark GUM shopping centre on the Red Square in Moscow, Russia, December 9, 2015. REUTERS/Sergei Karpukhin

Hermes, known for its colorful silk scarves and its Kelly and Birkin leather handbags, said on Wednesday that growth in its domestic market slowed to 1 percent in the last three months of 2015, down from 7.9 percent and 9.7 percent in the previous quarters.

“Tourist flows have not yet returned to normal,” Hermes Chief Executive Axel Dumas told Reuters, referring to the Paris attacks. Hermes makes 14 percent of its turnover in France.

Hermes predicted that 2016 sales growth could be below its medium-term target of 8 percent, citing global economic and geopolitical uncertainty.

Shares in the company fell by more than 4 percent in early trading but were up 1 percent by midday, helped by a rising French stock market.

“We would not read too much into Hermes’s guidance in earnest: it has a history of over-prudence and it is very early in the year,” said JP Morgan Cazenove analyst Melanie Flouquet, who kept her 2016 estimates unchanged, including sales growth of 7.5 percent.

Hermes posted an 8.1 percent rise in full-year sales at constant exchange rates, one of the highest growth levels in the sector but a clear slowdown from 2014.

Sales reached 4.84 billion euros ($5.46 billion) last year, broadly in line with forecasts, with growth slowing from the previous year’s 11.1 percent.

Fourth-quarter revenue was up by 7.2 percent, against 9 percent growth in the previous three months.

One bright spot in 2015 was mainland China, Dumas said, where sales rose by close to 10 percent, partly boosted by the opening of new stores. Trading in Hong Kong and Macao, however, was weaker than expected.

Leather goods revenue rose 14.3 percent in the last three months of the year, while fashion and ready-to-wear grew 3.7 percent, Hermes said.

The fashion and leather division of the world’s biggest luxury group, LVMH (LVMH.PA), last week beat expectations with a 3 percent rise in like-for-like quarterly revenue. Burberry’s (BRBY.L) like-for-like sales remained flat, however, and Richemont’s CFR.VX revenue dropped by 4 percent, hit by weak demand in Hong Kong.

Hermes said that its silk and textiles sales fell 7.2 percent in the fourth quarter, hit by the year-end events in France while suffering from slowing sales in Greater China, though business continued to develop in other regions.

The company, which publishes full-year results in March, added that it expects its 2015 operating margin to be close to the 31.5 percent achieved in 2014.

Editing by David Goodman

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