French handbag maker Hermes posts record first half margins
* Record margins at 34.5 pct of sales
* Seeing resilient demand in key markets such as China
* Hermes says keeps stock destruction to a minimum
(Adds comments on product destruction and fur, writes through)
By Sarah White and Pascale Denis
PARIS, Sept 12 (Reuters) - France's Hermes on
Wednesday said operating margins reached a first-half record at
the start of 2018 as resilient demand in key markets like China
also helped the luxury handbag maker and most of its major
rivals lift profits.
Top luxury labels from Louis Vuitton owner LVMH to
Gucci-parent Kering are basking in a favourable sales
environment thanks to buoyant appetite from Chinese shoppers,
who account for about a third of the global sector's revenue.
This momentum has yet to slow in spite of the trade spat
between Beijing and Washington, and Hermes had reported robust
revenue growth for the second quarter in July thanks to strong
That remained the case, Hermes Chief Executive Axel Dumas
told journalists on Wednesday, as the company posted a 6 percent
rise in recurring operating income to 985 million euros ($1.14
billion) between January and June.
"There has not been any change in trend so far," Dumas told
Recurring operating margins, which strip out the effect of
one-off items such as the disposal of shops in Hong Kong,
reached a first-half record at 34.5 percent of sales, up from
34.3 percent in the first six months of 2017 as it kept a lid on
costs, including in communications.
Hermes has long had one of the highest profit margins in the
luxury sector and its wares, including its famed Birkin bags,
can sell for well over $10,000.
Like peers, the firm is now vying for attention from young
shoppers and expanding e-commerce operations as well as
gradually increasing production to meet demand.
Fears of a slowdown in Chinese had rattled shares across the
sector in recent months.
Shares in Hermes, one of the most highly-valued stocks among
luxury players, are up 20 percent since the start of the year,
and were up 2.25 percent at 1021 GMT.
Luxury brands drew unwanted attention over their
environmental credentials after Burberry disclosed that
the value of products it destroyed reached a new high last year.
The British brand has since said it would no longer burn
unsold goods - a practice long associated with premium brands
keen to keep discounting to a minimum, though few give details.
Dumas said Hermes products were occasionally destroyed,
though he added that the group avoided this as much as possible
by recycling, organising sales for employees, and controlling
stocks and production very tightly.
"In terms of quantity, it's very little," he said.
Hermes' hand-stitched handbags are known for generating long
waiting lists and stocks of these are often scarce. The group
also makes silk scarves, perfumes and clothing.
Asked whether Hermes would follow Burberry, Gucci or Italy's
Versace in dropping the use of animal fur in its collections,
Dumas said the firm had not yet decided but that it was a "small
player" in this field.
(Reporting by Sarah White and Pascale Denis;
Editing by Sudip Kar-Gupta and Elaine Hardcastle)
First Published: 2018-09-12 08:05:09
Updated 2018-09-12 13:47:00
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