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Hermes Reports A Significant Turnaround In China And A Record Margin

Hermes Reports A Significant Turnaround In China And A Record Margin
Hermes sales grew considerably in the second quarter, boosted by robust growth in Europe and the United States, as well as a solid resurgence in China in June.
Following Chinese lockdowns in April and May, the French leather goods company, which is particularly known for its silk scarves with equestrian patterns, saw a rebound in sales in the fourth quarter.
Luxury merchants were heavily hurt by movement restrictions in important Chinese cities like Shanghai and Beijing, with most reporting a more than 30per cent reduction in sales in the country - a critical market for the industry - over the quarter.
In a conference call with reporters, Hermes Executive Chairman Axel Dumas declined to provide a figure for the group's Chinese sales in the quarter, but indicated they were lower than rivals reported. He claimed that the June resurgence had not entirely compensated for the declines in April and May.
In the three months to June, the group's total revenues were 2.7 billion euros ($2.76 billion), a 19.5 per cent increase at constant exchange rates, which excludes currency movements.
Hermes increased operating margins to a record 42 per cent in the first half of the year, the highest in the industry and a significant success given that Hermes has hiked prices less than competitors such as LVMH and Chanel in recent months.
Hermes, long seen as particularly resilient to downturns, has long been one of the most consistent performers in the luxury goods business, thanks in part to meticulous control of production and stocks, which has helped maintain its aura of exclusivity.
Its coveted $10,000+ Birkin purses sometimes have waiting lists and can sometimes grow in resale value, boosting to their appeal as a luxury item that is less susceptible to fashion trends and economic crises than other products.
"This set of results confirms that Hermes is likely going to be the most resilient luxury goods player in a recession, and an appropriate hiding place for those seeking cover," said Luca Solca, luxury analyst at Bernstein.

Christopher J. Mitchell

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