July 30, 2020 / 6:16 AM / 9 days ago

Birkin bag maker Hermes cautious on outlook as virus hits sales

MILAN/PARIS (Reuters) - French luxury group Hermes said on Thursday comparable sales in the second quarter fell by 42% due to the fallout of the coronavirus outbreak and that the impact of the health crisis for the whole year was too difficult to assess at this stage.

FILE PHOTO: The logo of Hermes is seen on a store in Paris, France, April 24, 2020. REUTERS/Charles Platiau/File Photo

In unusually cautious comments, the maker of the $10,000-plus (7,706 pounds) Birkin bag said sales were improving in all regions, and particularly in Asia, since the easing of lockdowns but the situation remained “difficult” in Europe and the United States.

CEO Axel Dumas added that it was impossible to predict when foreign tourists, who in the summer months can represent 70% of European sales for luxury groups, would resume travelling.

Hermes is less exposed than peers to shopping by tourists, but it still makes up 35% of its global sales, according to UBS. The 42% fall in second-quarter revenue at constant exchange rates was a touch steeper than analyst consensus forecasts for a 39-40% decline.

The crisis ate into Hermes’ operating margins, which have long been among the highest in the luxury goods industry.

These held up better than at some rivals including Louis Vuitton owner LVMH, but still fell to 21.5% compared to 34.8% a year earlier.

Shares in the group, which have outperformed the sector and are up 8% since the start of the year, fell 2.2% by 0820 GMT.

In a sign of confidence, Hermes said it had hired 250 people in the first six months of the year - mostly in production - and that it continued to invest to expand its manufacturing capacity for leather goods in France. It also slightly increased prices.

At the peak of the health crisis, which first erupted in China and then spread to Europe and the United States, Hermes had to temporarily close 75% of its stores and put production sites on hold.

Dumas said online sales had increased by 100% or more in China and the growth had continued even after stores reopened there, estimating the bulk of online shopping was made by new customers. One first-time buyer purchased a sofa - whose price ranges from 43,000 euros to almost 100,000 euros online.

Reporting by Silvia Aloisi; editing by Sarah White, Jason Neely and Emelia Sithole-Matarise

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