August 31, 2012 / 10:40 AM / 7 years ago

Hermes lifts 2012 sales target on Asia boost

PARIS (Reuters) - French luxury giant Hermes (HRMS.PA) raised its annual sales growth target on Friday after posting double-digit revenue and profit increases in the first half, confirming the resilience of the industry despite global economic turmoil.

The maker of 10,000-euro leather bags and silk dresses, in which the billionaire owner of rival LVMH (LVMH.PA) Bernard Arnault owns 22.3 percent, is now targeting 12 percent annual growth at constant exchange rates, up from a previous target of 10 percent.

Appetite from emerging market shoppers - in particular the Chinese - for designer clothes and leather accessories has shielded luxury goods makers such as Hermes and LVMH from headwinds in Europe.

“A good and reassuring publication for Hermes,” Cheuvreux analyst Thomas Mesnin said in a note, adding that concerns prompted by management in March about profitability did not seem to be justified.

Shares in Hermes rose 2 percent on Friday and were trading up 0.8 percent at 225.5 euros at 1022 am British time.

Chief Executive Patrick Thomas said on Friday that sales trends in July and August were in line with the first half.

Hermes confirmed expectations that the operating margin for 2012 would likely fail to match its all-time high in 2011 as the group continues to develop its distribution network.

The retail-driven luxury industry is facing margin pressure because of unfavourable exchange rates and higher costs that companies can only partially pass on to consumers, especially in Europe. But strong brands like Hermes can rely on big spenders who put quality before price.

Mesnin said the company’s guidance of a full-year operating margin between 27.8 percent of sales in 2010 and 31.2 percent in 2011 seemed conservative if compared with the 32.1 percent in the first-half. Cheuvreux has a current estimate of 31 percent.

The maker of silk scarves and 1 million-euro crocodile leather jackets said first-half net profit grew 28 percent, adjusting for a one-off gain from asset sales in 2011, to 335.1 million euros ($418.81 million).

Growth was driven by big-spending Asian markets like China, Singapore and Hong Kong, which defied slowdown fears with 25 percent sales growth in the first half. All product lines, from leather goods to jewellery and watches, grew at double-digit rates.

Hermes sales rose 21.9 percent to 1.59 billion euros in the first half, up 15.4 percent at current exchange rates.

Reporting by Lionel Laurent and Pascale Denis; Writing by Antonella Ciancio in Milan; Editing by James Regan

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