Hermes upbeat on China as strong U.S., European demand buoys sales

Hermes, which also sells silk scarves and porcelain tableware, had a strong start of the year in China until the beginning of March, when restrictions aimed at stemming the spread of the coronavirus prompted some store closures, including three in Shanghai, Executive Vice President for Finance Eric du Halgouet told journalists in a call.

“We are confident and hope that these stores in Shanghai will reopen quickly – in any case the fundamentals are excellent in China,” he said.

The French luxury group said revenues at constant exchange rates came rose 27% to 2.8 billion euros ($3.06 billion) in the three months to March, ahead of a consensus forecast of 15%organic growth.

The results confirm “the year is off with a bang,” said Luca Solca, analyst with Bernstein.

Hermes shares rose as much as 4.5% and traded up 1.3% at 0900 GMT.

All divisions clocked double-digit growth, including the leather goods and saddlery activity known for its Birkin and Kelly handbags, which accounts for nearly half of annual sales and reported 15.8% sales growth.

Other divisions grew even more, with ready-to-wear and accessories division up 44% and sales of watches up 62%.

Hermes is in close contact with its 60 employees in Russia, continuing to pay their salaries while providing training and psychological support, du Halgouet said. Some have relocated to countries nearby.

The group last month said it was suspending commercial operations in Russia, closing its three stores in Moscow and putting plans to open one in St. Petersburg on hold. All exports to the country have been halted and Hermes is complying with rules banning sales to sanctioned oligarchs, the executive added.

Production of leather goods, which is based in France, has normalized after COVID-related disruptions at the start of the year, and production of other goods, including porcelain and silk has also increased since January, the finance chief said.

At the end of last year, Hermes missed market forecasts – a rare instance of underperforming rivals – as self-imposed production caps kept the group from meeting demand for its prized handbags.

Hermes limits volume growth in its leather goods production to 6% to 7% annually, preferring to have long waiting lists for its products rather than speed up production.