Hermes cautions over impact of strong euro as H1 profits hit record high

[PARIS] French luxury goods maker Hermes said its first-half operating margin climbed to a record high of 34.3 per cent of sales, although it struck a note of caution over the impact of the euro's strength.

Chief executive Axel Dumas said the first half performance could not be extrapolated to the full year even though the company was "fully hedged" against a stronger euro in 2017.

There could therefore be a negative impact from a stronger euro on 2018 profits, Mr Dumas said on a call with journalists.

"We try to be ambitious but are cautious in a very volatile environment," Mr Dumas said.

Hermes, known for its US$10,000 Birkin bags and US$400 printed silk scarves, said operating income from recurring operations rose 13 per cent to a record high of 931 million euros (S$1.5 billion) in the first-half of 2017, on the back of strong sales.

Hermes also reported a boost from favourable foreign exchange hedging contracts set up in 2016.

The first-half 2016 operating margin had stood at 33.9 per cent of sales.

In July, Hermes reported a 9.7 per cent rise in revenue at constant exchange rates to 2.713 billion euros, thanks to a robust performance at its leather goods division, which makes up 50 per cent of group sales.

The luxury goods industry has suffered in the past couple of years as demand in China had slowed down, while a series of deadly attacks in France from Islamist militants had deterred some tourists from travelling to Europe.

Yet Hermes, and its rivals in the luxury industry such as LVMH and Kering, have started to signal better demand in mainland China and improving tourist spending in Europe.

Hermes said it was keeping an "ambitious" medium-term goal for revenue growth at constant exchange rates despite growing economic and geopolitical uncertainties.

REUTERS