Hermes raises full-year revenue forecast as sales surge

Hermes International, the French luxury-goods maker in which LVMH Moet Hennessy Louis Vuitton holds a stake, raised its full-year revenue forecast after third-quarter sales surged 31%. Revenue may climb about 15% in 2010, excluding currency swings, assuming that “solid” sales growth continues in the fourth quarter, Hermes recently said in in a recent statement, revising an August 31 forecast of 12% growth. Sales increased to €590.1 million (US$818.4 million) from €452.1 million a year earlier, the Paris-based company said. Hermes’s sales of leather goods rose 32% as more shoppers in Asia picked up handbags such as the company’s Birkin model. Sales of luxury goods may climb this year to the highest level since 2007 after the worst year on record, consulting firm Bain & Co. estimates. Revenue at PPR SA’s Gucci Group increased 27% in the third quarter and sales of fashion and leather goods at LVMH rose 26%. Hermes’s third-quarter sales growth “was well ahead of our forecasts, confirming the strong sales momentum recently reported by peers,” Rogerio Fujimori, an analyst at Credit Suisse Group AG in London, wrote in a note. He rates Hermes “underperform.” LVMH, the world’s largest luxury-goods maker, announced October 23 it held a 14.2% stake in Hermes and derivative instruments for another 2.9% that it has since exercised. LVMH later said it may increase its holding, depending on the circumstances. The company has said it doesn’t intend to seek a board seat or control. LVMH’s investment “changes nothing,” Hermes Chief Executive Officer Patrick Thomas said today on a conference call. Hermes’s founding family, which controlled about 73% of the bag maker as of October 28, is “serene, unified and vigilant” and is considering its options, the CEO said. Hermes’s controlling shareholders want LVMH to withdraw from its capital, Le Figaro reported November 3, citing family member Bertrand Puech. The Hermes family doesn’t need a poison pill defense, Thomas said. Hermes had no LVMH shareholders as of three weeks ago, Thomas said. The company is confident the Autorite des Marches Financiers will determine the legality of LVMH’s stake, he said. The AMF, France’s stock market regulator, is investigating how LVMH built up its investment in Hermes to determine if securities rules were breached, AMF Chairman Jean-Pierre Jouyet said November 5. LVMH said at the time it “scrupulously respected the applicable rules.” The Hermes Group did not buy back any shares during the first nine months of 2010, other than shares traded under the liquidity contract, the company said. The quarterly sales increase was driven by higher sales at the company’s own stores, Hermes said. Wholesale revenue continued to improve and all Hermes business sectors delivered growth, the company said. Over the full year, the underlying operating margin will improve by “one or two” percentage points, depending on currency trends, Hermes predicted. The bag maker will introduce “moderate” price increases from 2011, Thomas said. Hermes doesn’t need to grow by acquisition and has no plans to make a major purchase at the moment, he added. Revenue from silk ties and scarves climbed 38% in the quarter. Apparel and fashion accessories sales jumped 25%. Revenue from watches rose 47%, perfume sales grew 25% and tableware sales gained 12%. Revenue increased 24% in Europe, led by France, and 3% in the Americas. Sales jumped 21% in Japan and surged 52% in the rest of the Asia Pacific region.