French luxury house of Hermes expects first-half operating profits close to the record level reached last year, as Hermes posted solid second quarter sales that augured well for the rest of the luxury sector.
Hermes’s strong sales increase in China shows that demand for luxury goods in that country has remained resilient despite slower economic growth, and in spite of the current trade war dispute between China and the United States.
Hermes, whose Birkin handbags are worth more than a small car, said sales rose 7.2 percent to 1.46 billion euros ($1.70 billion) for the three months through June.
Sales rose 12 percent at constant exchange rates, up from 11 percent during the previous quarter. Analysts expected a 10 percent increase. The company said adverse currency swings represented a negative effect of 165 million euros on its top line.
Sales in China kept on growing at a double-digit rate as in the past years, Chief Executive Axel Dumas told reporters. Demand in China had not been affected by macroeconomic uncertainties, he also said, adding that the current trade war unravelling between the U.S. and China would not have an immediate impact on Hermes.
“We have customers that travel,” he said. “A trade war would be bad for everybody. I’d prefer there wouldn’t be a trade war, but I don’t think we will be the first company to be hit.”
Given the good health of the Chinese market and solid growth elsewhere, the company expects its operating profitability in the first half of this year to be close to the record level reported in the first half of last year.
Earlier this month, British luxury goods company Burberry reported higher quarterly sales growth, and Hermes’ figures bode well for other luxury goods makers such as behemoth LVMH, Gucci-owner Kering or German fashion house Hugo Boss, which all depend on Asian markets.
Hermes will report financial results for the first half of the year on September 12. Profitability in the first half will be further boosted by the 50 million capital gain Hermes made on the sale of its store in Hong Kong, the company added.
Dumas said Hermes had cut its prices by 4 percent in China on July 1 after the Chinese government cut tariffs on imports.
Hermes, which derives the biggest chunk of earnings from leather goods, also posted strong growth in other divisions including in its fashion lines, perfumes and jewellery business.
Hermes shares were flat at 539.40 euros in early session trading. The stock hit a record high of 609.45 euros in May and is up by around 20 percent so far in 2018.