Hermes sales buoyed by bags after boosting leather output

[PARIS] Hermes International SCA reported first-quarter leather-goods sales that beat analysts' estimates as the French luxury company boosted purse production and the aftershock of November's Paris terror attacks eased.

Revenue reached 1.19 billion euros (S$1.8 billion), Hermes said Thursday, matching the median analyst estimate. Sales rose 6.2 per cent, excluding currency fluctuations, slightly ahead of the 5.8 per cent estimate. The stock gained as much as 2.7 per cent in Paris.

"The biggest and most profitable luxury-goods division saved the day," wrote Rogerio Fujimori, an analyst at RBC Capital Markets. "France was surprisingly resilient, which probably was driven by its loyal local clientele."

Hermes's Parisian stores are still suffering from the fallout of last year's terror attacks, as well as the recent bombings in Brussels, Chief Executive Officer Axel Dumas said on a call with reporters.

While store visits in London and Milan are back to normal levels, Paris has yet to recover, he said, seeking to explain a 9.2 per cent drop in sales of silk scarves and ties.

Leather-goods and saddlery revenue rose 15 per cent, beating the 12 per cent consensus. Hermes expanded leather production facilities in France last year, boosting supplies. The company's 15th leather workshop opened this month and investments in another are continuing, Hermes said.

Sales of every other major product line dropped.

Hermes has served fewer customers in the Middle East due to a drop in tourism and the plunging price of oil, Mr Dumas said. Sales fell in Macau, though they stabilized in Hong Kong, which remains weak, the CEO said. And Hermes's US retail sales trailed a 4.4 per cent gain in the Americas region, he said.

"There's a lot of volatility," Mr Dumas said. "We have to adapt to circumstance." Hermes warned last month that 2016 will be difficult. If that doesn't change and demand remains subdued in parts of Asia and the US, revenue growth could be below 8 per cent this year, excluding currency swings, Hermes reiterated on Thursday.

BLOOMBERG