UPDATE: Hermes Raises 2010 Targets As Sales Climb Sharply

French high-end fashion house Hermes International (RMS.FR) Tuesday doubled its full-year sales growth target as it reported a 27% jump in second quarter sales on strong demand for its classic leather handbags and silk scarves, raising expectations for other luxury goods companies.

Sales for the second quarter ended June 30 were EUR567 million, up 27% from EUR446.6 million a year ago, beating analysts' expectations for EUR531.3 million.

"This strong report bodes well for the sector," said Pierre Lamelin, analyst with Cheuvreux, in a research note.

At constant exchange rates, sales grew nearly 20%.

The company's sales and results should be positively affected by currency rates this year due to better hedging policies, Chief Financial Officer Mireille Maury told Dow Jones Newswires in an interview.

The company plans to increase its spending on advertising and promotions this year, to EUR125 million from EUR90 million last year, Maury said. Hermes has also earmarked EUR180 million for investing in its distribution network, renovating existing stores and adding news ones. Like its larger peers, Hermes is focusing much of its expansion efforts on Asia.

Most of the company's planned store openings this year are in Asia, and it opened two new stores in China in the first half of the year.

Hermes plans to create a new Chinese brand, Shang Xia, which will employ Chinese craftsmanship. However the project, which is the first of its kind for Hermes, will not have a big effect on this year's earnings, Maury said.

The company doubled its full-year organic sales growth guidance to between 10% and 12% from 5% previously. Hermes said its full-year operating profit margin should improve by at least one percentage point, compared with its previous target of matching last year's level of around 24%.

However, Hermes said the guidance doesn't take into account economic factors that could significantly alter the business environment.

Luxury goods companies have been cautious in calling a recovery after years of heady growth were derailed by the economic crisis.

Analysts had expected the company to increase its guidance after the first quarter, and some said the new figures remain conservative.

Sustained demand for Hermes' hand-stitched leather handbags helped the company through the economic downturn as consumers of high-end fashion shunned trendy accessories for classic items.

Hermes showed brisk sales growth in all of the major regions it operates in, except Japan, with the fastest growth coming from Asia, excluding Japan, where sales were up 44% at constant exchange rates to EUR147.6 million.

Sales momentum was impressive, said Antoine Belge, analyst with HSBC citing better sales growth in Europe and the Americas, and "stellar" growth in Asia excluding Japan. The quarterly performance is another sign that high-end consumers in the US are gaining confidence, and more quickly than other consumers, Belge also said.

Sales in Japan, an important market for the industry, fell 1.6%, at constant rates. Maury said the Japanese market remains weak but she thinks the company is outperforming rivals there as consumers favor the best-known luxury brands.

U.K. luxury fashion house Burberry PLC (BRBY.LN) last week reported a 27% rise in sales of its first quarter for the fiscal year.

At 1300 GMT, Hermes shares traded up 3.1% or EUR3.6 higher to EUR118.40., outpacing a lower French market.

By Mimosa Spencer, Dow Jones Newswires; +33 1 40 17 1773; mimosa.spencer@dowjones.com

(Amelie Baubeau contributed to this item)

Burberry (PK) (USOTC:BURBY)
Historical Stock Chart
From Sep 2024 to Oct 2024