FRANCE: Hermes Raises 2010 Sales Growth Forecast

Hermes International SCA, the French maker of luxury handbags and silk scarves, raised its 2010 revenue forecast after second-quarter sales increased faster than analysts had estimated, on demand in Asia.

Full-year revenue may grow as much as 12 percent, Paris- based Hermes said today in a statement before markets opened. The 173 year-old company in March forecast that revenue would gain at least 5 percent. Second-quarter sales rose 27 percent to 567 million euros ($738 million) from 446.6 million euros a year earlier, Hermes said. The average estimate of six analysts surveyed by Bloomberg was 533.3 million euros.

First-half operating income is projected to show a strong increase, above the 23 percent first-half rise in sales, compared with the same period a year ago, Hermes said. The maker of Birkin and Kelly bags reports first-half results on August 31. Over the full year, operating margin is expected to improve by at least 100 basis points compared with 2009, depending on currency trends, Hermes said.

Demand for luxury goods is accelerating as Chinese shoppers buy more high-end clothing and accessories, and U.S. and European consumers spend again after the recession. Burberry Group Plc last week reported a 27 percent sales increase in the quarter ended June 30. Worldwide spending on luxury goods may rise 4 percent in 2010, consulting firm Bain & Co. estimated in April.

‘Easy’ Comparisons

“Hermes is still benefiting from relatively easy” sales comparisons in 2009, Leopold Authie and Edouard Crowley, analysts at Exane BNP Paribas, wrote in a July 15 note. Authie and Crowley have an “underperform” rating on the shares.

“The growth rate registered in the first six months cannot recur in the second half owing to a less favorable comparison base,” Hermes said in the statement. The second quarter was “beyond expectations,” leading to the higher full-year sales growth target.

Revenue jumped 57 percent in Asia excluding Japan, where sales gained 10 percent, Hermes said. Sales increased 20 percent in Europe and 36 percent in the Americas. Hermes plans to open or renovate about 20 stores this year, including a new boutique on rue de Sevres in Paris.

Sales of leather goods increased 32 percent, while revenue from silk ties and scarves gained 24 percent, Hermes said. Apparel sales climbed 26 percent. Revenue rose 36 percent for watches and 17 percent for perfumes. Sales of both product lines were hurt last year as third-party distributors ran down inventories. Tableware sales slipped 2.2 percent.

Sales of Hermes apparel, accessories, fragrances and watches will probably recover this year, particularly in the company’s own stores, Chief Executive Officer Patrick Thomas said in March. Leather items as a percentage of sales will fall to 45 percent, he said.

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Added: July 20, 2010 Source: Bloomborg
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