Du­mas Touts Her­mès’ Po­si­tion at AGM

The share price has risen 35 per­cent since the start of the year amid spec­u­la­tion Euronext will add it to the CAC-40 in­dex.

WWD Digital Daily - - News - BY MI­MOSA SPENCER

PARIS — As the world’s lead­ing lux­ury houses steam ahead with block­buster brands like Gucci and Louis Vuit­ton lead­ing the charge, Her­mès In­ter­na­tional has emerged as a qui­eter but steady force in an in­creas­ingly po­lar­ized in­dus­try.

“There can be a real dis­par­ity be­tween com­pa­nies do­ing well, like us, and com­pa­nies do­ing very badly,” said Her­mès chief ex­ec­u­tive of­fi­cer Axel Du­mas, speak­ing to share­hold­ers Tues­day.

“There is real po­lar­iza­tion and one has to be care­ful to be on the right side of the fence, and this is what we’re try­ing to do, humbly,” Du­mas added. The ex­ec­u­tive noted that while the sec­tor as a whole grew at a sim­i­lar rate as re­cently as 2010, a gap in the per­for­mances of dif­fer­ent lux­ury com­pa­nies has since emerged and is widen­ing.

Groups like Ker­ing, which owns Gucci, are en­joy­ing a spec­tac­u­lar pace of busi­ness, with a nearly 30 per­cent rise in rev­enue on a com­pa­ra­ble ba­sis last year. Her­mès, with 9 per­cent rev­enue growth at con­stant ex­change rates last year, is still con­sid­ered by an­a­lysts as one of the sec­tor’s more solid per­form­ers.

An­a­lysts at HSBC called the com­pany one of the most re­li­able busi­ness mod­els in the sec­tor but low­ered their rat­ing to ‘re­duce’ af­ter a re­cent surge in the share price.

Her­mès’ share value has risen 35 per­cent since the start of the year amid spec­u­la­tion Euronext could de­cide to in­clude add it to the Paris stock mar­ket’s CAC-40 in­dex this week.

Sales at Her­mès “tend to out­per­form the sec­tor in good times (with non-leather prod­ucts ac­cel­er­at­ing) as well as in tougher times (the com­pany ben­e­fit­ing from wait­ing lists on leather prod­ucts),” HSBC said in its note, sent to clients this week.

Fa­mous for its wait­ing lists for cov­eted items like its Birkin or Kelly hand­bags, the com­pany is nonethe­less do­ing as much as it can to ramp up pro­duc­tion, Du­mas said.

“We are do­ing the max­i­mum when it comes to pro­duc­tion,” he said, rat­tling off con­straints like find­ing the right ma­te­ri­als and train­ing peo­ple.

“If we don’t have the right ma­te­ri­als, we don’t pro­duce — we use the best ma­te­ri­als,” he said, not­ing this is why Her­mès has in­vested in tan­ner­ies.

The com­pany can train around 250 peo­ple as leather goods ar­ti­sans a year, but it takes a few years for them to in­crease pro­duc­tiv­ity, he es­ti­mated. Fur­ther slow­ing down the process, crafts­men at Her­mès pro­duce a prod­uct from be­gin­ning to end. Birkin and Kelly bags take 16 hours of man­ual sewing work, he said.

“All these con­straints, they are not ar­ti­fi­cial, but rather, I would say quasi-eth­i­cal,” as­serted Du­mas.

In re­sponse to a ques­tion from the au­di­ence, Du­mas said that Her­mès doesn’t in­tend to in­vest in an­i­mal feed but that the in­dus­tri­al­iza­tion of cattle rais­ing re­sults in lower qual­ity skins.

“I lobby for the most nat­u­ral cattle rais­ing pos­si­ble,” he noted.

In ad­di­tion to in­vest­ing in pro­duc­tion, Her­mès seeks growth by main­tain­ing a bal­ance be­tween re­gions and its prod­ucts.

“We live in a very un­cer­tain world, ev­ery two years there is un­for­tu­nately a tragic event,” he said, cit­ing things such as ter­ror­ist attacks, SARS in Hong Kong and the Fukushima nu­clear ac­ci­dent in Japan.

In terms of prod­ucts, Her­mès also seeks to main­tain a bal­anced mix.

“It’s very im­por­tant for us to in­vest strongly to­day in the prod­ucts of to­mor­row, too, those that have big po­ten­tial,” he added, rat­tling off per­fume, shoes and jew­elry as ex­am­ples.

As for in­vest­ments in dig­i­tal av­enues, “It’s ob­vi­ous, this is es­sen­tial,” he added.

The com­pany launched new In­ter­net sites in the U.S. and Eu­rope in re­cent months, with a fo­cus on richer con­tent, like films. Tout­ing the suc­cess and po­ten­tial of the new sites, Du­mas said that a large long couch was one of the first items sold on the new In­ter­net site, to a new client.

Her­mès con­tin­ues to work on mak­ing Shang Xia, its Chi­nese la­bel, prof­itable.

As for ac­qui­si­tions, Du­mas stressed that the com­pany has a lot of po­ten­tial for in­ter­nal growth, which is the pri­or­ity for the house.

Share­hold­ers over­whelm­ingly ap­proved mea­sures in­clud­ing Du­mas’ salary of 2.77 mil­lion eu­ros for 2017 as well as a res­o­lu­tion al­low­ing the com­pany to buy back and can­cel shares rep­re­sent­ing up to 10 per­cent of the cap­i­tal.

Heirs of Émile Her­mès, which owned 66 per­cent of the com­pany last year, re­cently raised their share.

“This year the fam­ily raised its share again in the com­pany,” noted board pres­i­dent Éric de Seynes, in his open­ing re­marks.

Guil­laume de Seynes, an­other Her­mès ex­ec­u­tive, said at a sep­a­rate event that the fam­ily had re­cently passed the two-thirds own­er­ship af­ter ob­tain­ing an ad­di­tional 1 per­cent to 1.5 per­cent share.

Share­hold­ers also voted for an ex­cep­tional div­i­dend of five eu­ros per share on top of the reg­u­lar div­i­dend of 4.10 eu­ros — a move wel­comed by one share­holder who said he was ap­proach­ing 92 years old.

“We have made the case for a while that if in­vestors have a long enough time frame, Her­mès shares could be a ‘buy and hold for­ever’ stock and we re­main con­vinced of the com­pound­ing na­ture of the busi­ness,” noted HSBC.

A yel­low “Color Spot” at the Her­mès Dwn­twn­men ex­hibit.

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