Hermès sees returned growth in Asia – 9-/2

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Hermès added to evidence of a luxury rebound as shoppers in Asia buy more silk scarves and Birkin handbags while tourists who were deterred by terrorism return to its stores in Europe.

Revenues climbed by 7.6 per cent to € 1.5 billion ($AUD2.1 billion) in the fourth quarter, the French luxury house said this week, meeting analyst expectations.

Hermès said sales in the rest of Europe were up 9 per cent at constant exchange rates, after a 9.8 per cent rise the previous quarter. Japan accelerated with sales up 8.9 per cent, but the Asia-Pacific region posted a more moderate growth of 4.4 per cent. The Americas were up 5.5 per cent, reflecting a slight slowdown.

WWD reports that the quarter capped a year of solid growth for Hermès, with sales up 7.4 per cent at constant exchange rates to € 5.2 billion ($AUD7.28 billion), in 2016 — marking the first time it has crossed the threshold of €5 billion ($AUD7 billion).

The performance was in line with the French luxury firm’s prediction that revenue growth in 2016 could be below its medium-term goal of 8 per cent at constant exchange rates “owing to the economic, geopolitical and monetary uncertainties around the world.”

Growth in 2016 was below the 8 per cent recorded the previous year and at its lowest level since 2009. Nonetheless, Hermès has performed better than many of its competitors, which are struggling to adjust to a decline in demand from China, which accounts for one in three luxury purchases worldwide.

Revenue growth was again driven by leather goods and saddlery, up 8.5 per cent at constant exchange rates. Hermès noted that the segment posted “remarkable” growth of 14 per cent in the year as a whole, driven by the success of the Constance, Halzan and Lindy bags alongside its classic Birkin and Kelly models.

Silk and textiles rebounded after a difficult year, posting growth of 11 per cent in the fourth quarter. Ready-to-wear and fashion accessories were up 4.1 per cent and perfumes rose 16.9 per cent, but watches fell 11.6 per cent as conditions for the sector remained tough, particularly in Asia.

Luca Solca, heads of luxury goods at the equity broker, said in a research note this week that Hermès is trading on a price-to-earnings ratio of 34.8 for 2017, a premium of 31 per cent versus the luxury goods sector.

“We believe that the Hermès multiple is bound to move back toward the industry average over time. Assuming that Hermès is different and will stay different over time may carry significant risk for the long-term investor,” he said.

The company will report its full-year earnings on March 22.

By Cassandra Murnieks

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