Hermes Is Optimistic About China, While Robust Demand From The US And Europe Increases Sales 

Sales at Hermes, the manufacturer of the Birkin bag, surpassed expectations in the first quarter, boosted by robust demand for its luxury accessories, particularly in the United States and Europe, as the sector struggles to recover from the Ukraine conflict and China’s COVID restrictions.

Hermes, which also sells silk scarves and porcelain tableware, had a strong start to the year in China until early March, when restrictions aimed at preventing the spread of the coronavirus forced the closure of some stores, including three in Shanghai, according to Eric du Halgouet, Executive Vice President for Finance.

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

Revenues increased 27 per cent to 2.8 billion euros ($3.06 billion) at constant exchange rates in the three months to March, exceeding the consensus projection of 15 per cent organic growth.

The figures suggest that “the year is off to a great start,” according to Bernstein analyst Luca Solca.

At 0900 GMT, Hermes shares were up 1.3 per cent, having risen as high as 4.5 per cent.

All divisions saw double-digit increase, including the leather goods and saddlery business, which is famed for its Birkin and Kelly purses and accounts for roughly half of yearly sales, with revenues up 15.8 per cent.

Other segments rose even faster, with ready-to-wear and accessories up 44 percent and watch sales up 62 per cent, respectively.

Hermes is in regular communication with its 60 Russian employees, paying their salaries and offering training and psychological assistance, according to du Halgouet. Some have relocated to neighbouring countries.

Last month, the company announced that it was suspending commercial operations in Russia, closing three locations in Moscow and deferring plans to open another in St. Petersburg. The executive stated that all exports to the country have been frozen, and Hermes is abiding by guidelines prohibiting sales to sanctioned oligarchs.

After COVID-related difficulties at the start of the year, production of leather goods has returned to normal, and production of other items, such as porcelain and silk, has also increased since January, according to the finance head.

Hermes missed market estimates at the end of last year, a rare instance of a competitor underperforming, due to self-imposed production restrictions that prevented the company from satisfying demand for its renowned handbags.

Hermes limits its leather goods production volume increase at 6% to 7% per year, preferring to have large waiting lists for its products over speeding up production.

(Adapted from USNews.com)

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