Global Players Hint Worst Might Be Over

While executives remain extraordinarily cautious, there is a growing sense that things may have bottomed out across the board.

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Hermès watch

Photo By Courtesy Photo

Hermès clutch

Photo By Courtesy Photo

Hermès purse

Photo By Courtesy Photo


Weak sales of watches, tableware and perfumes dented Hermès International’s bottom line, sending net profits down 7 percent in the first half to 125.4 million euros, or $167.4 million.

Patrick Thomas, ceo, said, the second half could be “marginally” better than the first since he anticipates a bump in wholesale orders for perfumes and improvements — barring any flu pandemic — in travel retail, which account for about 10 percent of its global sales.

The company reiterated its target of steady sales for the full year at constant exchange rates and a “slight contraction” in current operating income.

Operating income in the six months ended June 30 fell 2 percent to 199.8 million euros, or $266.8 million, as sales rose 7.6 percent to 874.9 million euros, or $1.17 billion. Dollar figures are converted from euros at average exchange rates.

Leather goods were the standout category in the half, powering ahead 15.7 percent at constant exchange rates. Hermès also said sales in its own stores grew in all regions, except Japan.

Asked about recent sales trends, Thomas characterized them as “more or less the same, or marginally better.” He noted, however, that he does not expect any immediate improvement in Japan, even if government data showing an increase in GDP suggest the country emerged from recession in the second quarter.

“I don’t believe at all in the end of the crisis in Japan,” Thomas said, citing an aging population and sluggish economy among long-term negative factors.

Nor does he expect any immediate improvement in the tableware or watch businesses as Hermès’ wholesale clients continue to scale back orders to conserve cash and keep inventories lean. Sales of watches in its own boutiques are “stable,” Thomas said, but down by as much as 50 percent in wholesale channels. “In watches, the slowdown will last at least up to the end of the year,” he added.

The operating margin in the first half of 2009 stood at 22.8 percent versus 25.1 percent a year ago.

Hermès also blamed currency fluctuations and poor returns on financial investments for the decline in profits. Thomas noted a drop in interest rates lopped about 10 million euros, or $13.4 million, from gains on its cash reserves.

Hermès continues to expand its retail network, with eight new stores planned for the second half. Following up on a successful pop-up location in East Hampton, N.Y., Hermès plans to open a temporary unit at 16 Rue de Grenelle in Paris on Thursday. The Left Bank location foreshadows a large, permanent boutique under construction in a former swimming pool at 17 Rue de Sèvres. It is slated to open next year.

Shares in Hermès International closed down 1 percent Friday at 103.50 euros, or $147.63 at current exchange, on the Paris Bourse.

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