Hermes warns of fading chic in sales

French luxury goods group Hermes warned on Wednesday that sales growth would probably fall below target this year because of economic and political uncertainties.

Hermes's share price dropped sharply in an early reaction, before being swept higher in a buoyant overall Paris stock exchange.

Hermes sales in 2015 rose by 18 percent from the previous year, the company also reported, and by 8 percent once the favourable impact of the strong dollar was stripped out.

In the fourth quarter alone, sales were up 15 percent, and 7 percent at constant exchange rates, "despite the impact of the recent events in France and, to a lesser extent, in Europe", it said.

But weakness in the luxury goods sector in the wake of terror attacks in Paris and elsewhere would probably take its toll on turnover this year, it warned.

"We were strongly impacted by the attacks and things have not yet returned to normal," Hermes chairman Axel Dumas told AFP. "In January we have again seen a heavy fall in tourism to France, across the board."
"We need to exercise a certain caution because of great currency volatility, lower oil prices, complex geopolitical situations and the slowdown of the Chinese economy," Dumas said.

Hermes said these factors would probably translate into 2016 sales growth "below the medium-term goal of 8 percent" at constant exchange rates.

"We are one of only few companies to give numerical targets," Dumas said. "We have always said that our medium-term objective was around 8 percent. Sometimes it's more, sometimes it's less. But in 2015 we delivered what we promised."

Hermes, which is to publish full annual earnings in March, gave an early indication that its profit margin on operations would be close to 2014's 31.5 percent.

Investors initially sold off Hermes stock, sending it more than 3 percent lower, but by midsession in Paris the shares were up 1.7 percent, only slightly underperforming the overall market, which was up 2.2 percent at the time.

"Hermes is certainly not immune to a possible erosion of demand," analysts at Aurel BGC said in a note.

"Fears of a slowdown in the world economy have rarely been as great since the 2008/2009 crisis," they said, adding however that Hermes earnings should still be expected to outperform those of its main luxury goods competitors.