Hermès lowers sales outlook for second consecutive year

Luxury handbag maker predicts growth at less than half the level it saw at the start of the decade

French handbag maker Hermès International SCA cut its sales outlook for a second year, predicting growth at less than half the level of the start of this decade as the luxury-goods sector cools.

Revenue might miss its medium-term goal of 8-per-cent growth at constant exchange rates in 2016 due to global economic and political risks, the Paris-based maker of $9,100 briefcases and $6,650 messenger bags said Wednesday. Last year, Hermès lowered the goal from a previous target of 10 per cent. Growth exceeded 18 per cent in 2010 and 2011.

The outlook shows how China’s cooling economy, tumbling stock markets and lower oil prices are weighing on even the most exclusive brands. It adds to concern about slowing luxury-goods sales, which MainFirst Bank AG estimates will expand about 2 per cent in 2016.

“The high-end is not immune,” said Luca Solca, an analyst at Exane BNP Paribas.

Recent earnings reports from luxury- goods makers have been glum, with Richemont’s Christmas season sales dropping for the first time in seven years and Swatch Group AG’s 2015 profit missing estimates.

Hermès shares fell as much as 5.6 per cent in early Paris trading, the steepest intraday drop since December 2014.

Revenue climbed 7.2 per cent at constant exchange rates in the fourth quarter of 2015, Hermès said. That was the slowest pace in six years as November’s Paris terrorist attacks led to a drop in tourist spending in the company’s home market. The shares traded 1 per cent higher at € 301 at 10:59 a.m. in Paris, erasing declines as European markets rallied.

The slump in Hermès was an overreaction, according to Berenberg analyst Zuzanna Pusz, who recommends buying the shares, saying that shoppers are returning to Hermès’s French stores and sales are growing in mainland China.

Hermès “is known for being conservative and in the current environment, no one could have expected the company to stay very bullish,” Pusz said.

The 2015 operating margin was close to 2014’s 31.5 per cent, despite being weighed down by currency shifts, said the company, whose Birkin bags have been worn by celebrities including Kim Kardashian.