Feb 12, 2015
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Hermes lowers annual sales growth target to 8 pct

Feb 12, 2015

PARIS, France - French luxury goods maker Hermes lowered its annual sales growth target for the first time in years to reflect its bigger size and overall industry downturn combined with potential hits from currency swings.

Hermes, which last year remained one of the strongest performers of the European luxury goods sector, lowered its annual sales growth target to 8 percent from its traditional level of 10 percent.

Hermès, Paris ready-to-wear summer 2015 fashion week | - Photo: PixelFormula.com

Chief Executive Axel Dumas said Hermes now needed to align its sales growth target with its size, having gone beyond the 4-billion euro mark for the first time in 2014, making it bigger than Gucci which posts results next week.

"There are also currency and geopolitical issues which encourage us to be prudent," Dumas said. "We have a complex Chinese market, tensions in Europe."

Hermes also said that its operating margin in 2014 would be "in the region of 31 percent", down from 32.4 the prior year, blaming the drop partly on foreign exchange fluctuations.

Hermes shares were down 1.3 percent in morning trade, even though fourth-quarter sales broadly met expectations.

Revenue rose 9.6 percent in the fourth quarter and 11.1 percent overall in 2014 at constant exchange rates. In contrast, sales at the fashion and leather goods division of industry leader LVMH which includes brands Louis Vuitton, Celine, Dior and Fendi, rose only 3 percent last year.

Smaller rival Salvatore Ferragamo saw its revenues rise 6.5 percent at constant currencies last year and Italian rival Prada is expected later this month to post no growth at all for the past year.

"It is worth noting that Hermes organic sales growth in 2014 is by far the best performance among our luxury groups sample with an average close to 5 percent," analysts at Bryan Garnier said in a note.

Hermes saw revenues in the last quarter jump 15.5 percent in the Americas, providing further evidence the United States had replaced China as the luxury industry's most buoyant market.

Part of the boost has come from the strong inflow of Chinese tourists and students in the United States, helped by visa procedures eased by the Obama administration.

Hermes also enjoyed strong growth in Japan, a market in which it has continued to invest over the years, with fourth-quarter sales up 12.6 percent at constant exchange rates.

The United States and Japan were also the strongest growing markets for LVMH.

Many luxury brands have been hit by weaker demand from the Russians and the Chinese, particularly in Hong Kong, where some labels make more than 10 percent of their sales, as protests spooked visitors.

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