May 3, 2018 / 6:32 AM / 2 years ago

Strong Chinese sales boost luxury handbag maker Hermes

PARIS (Reuters) - Thriving demand in China boosted sales at Birkin bag marker Hermes (HRMS.PA) in the first quarter, underscoring an upbeat start to the year for some of the luxury sector’s biggest names.

A Hermes L'heure Impatiente watch is displayed at the Baselworld watch and jewellery fair in Basel, Switzerland March 22, 2017. REUTERS/Arnd Wiegmann

From fashion labels to jewelers, many firms in the industry have reported better than expected sales at the start of the year, with strong demand from Asian and U.S. shoppers.

That has helped offset a slowdown in tourist spending in Europe, while luxury consumers have so far shrugged off trade tensions between Beijing and Washington.

Hermes, known for its $10,000-plus hand-stitched Birkin and Kelly bags, said revenue rose 11 percent on a constant currency-basis from a year ago in the first quarter, an uptick from the previous three months and more than analysts had forecast.

“The performance of our first quarter is probably beyond our annual objective,” Chief Executive Axel Dumas told journalists. “This was a strong start.”

Dumas added the drag from currency fluctuations, which hit sales by 104 million euros ($125 million) in the quarter, should ease later in the year. On a reported basis, Hermes’ sales were up 3 percent to 1.34 billion euros between January and March.

Europe-based luxury firms are grappling with a stronger euro, which penalizes revenues converted back into the currency and can put off foreign shoppers in the region.

Sales in China have proved resilient, though, and Hermes said revenue in Asia, excluding Japan, rose 16 percent on a constant currency basis in the first quarter. The firm opened a three-storey flagship store in Hong Kong in January.

Like LVMH-owned (LVMH.PA) Louis Vuitton, Hermes, which trades off its “Made in France” appeal, is opening new handbag workshops to keep up with demand, as well as expanding online sales.

The firm, which derives the biggest chunk of earnings from leather goods, posted particularly strong growth in other divisions including in its fashion lines, perfumes and jewelry business.

The luxury industry’s biggest conglomerates, LVMH and Gucci owner Kering (PRTP.PA), also posted strong sales for the first quarter even against a tough comparison base, though the sector’s performance has been uneven.

Some companies shaking up their offers to appeal to younger consumers, like German fashion house Hugo Boss (BOSSn.DE), have shown signs of a turnaround. Italy’s Salvatore Ferragamo (SFER.MI), which has struggled to boost sales, reports first-quarter revenue next week.

Hermes shares are up around 20 percent so far this year.

Reporting by Sarah White and Pascale Denis; Editing by Sudip Kar-Gupta and Mark Potter

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