By Mimosa Spencer
PARIS (Reuters) -Birkin bag maker Hermes posted a forecast-beating rise in sales in the fourth quarter, lifted by brisk business in the United States and double-digit revenue growth in China even as the rest of the sector took a hit from rising COVID infections.
European luxury brands have benefited from a strong, post-pandemic rebound as shoppers drew on savings during lockdowns to treat themselves to designer label fashion.
But while much of the industry took a hit in China as COVID infections rose at the end of last year, Hermes executive chairman Axel Dumas told analysts on Friday that Hermes “continued to see strong desirability in China”.
It also saw strong demand from Chinese clients across products during the Lunar New Year, Dumas said.
Globally, sales for the three months to end-December rose by 22.9% to 2.99 billion euros ($3.2 billion), outpacing analyst expectations for 17% growth at constant rates, according to a Visible Alpha consensus.
Annual recurring operating profitability reached a record 40.5%, up from 39.3% in 2021, the company said, adding that it was confident about 2023.
“Hermes has ploughed through the Covid-19 related issues in 4Q22, and produced a very solid beat to consensus,” Bernstein analyst Luca Solca said.
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In the United States, where the company opened a sprawling store on Madison Avenue in New York in September, sales jumped 40.8%.
The performance marked a contrast with some rivals that experienced weaker sales there as business shifted to Europe, with travelling Americans taking advantage of the strong dollar.
Hermes said it would propose a dividend of 13 euros per share at its next general meeting on April 20 and would hand out a 4,000 euro bonus to all its employees this year.
The shares were down 1.4% in early morning trade.
They are up 20.48% year to date.
“The stock has been very strong YTD (year to date), and expectations were high into today, but still the operational outperformance should warrant further gains this morning,” J.P.
Morgan analysts wrote in a note.
The company cited rising labour costs as the reason behind its recent price hikes of around 7%, implemented in January, after price hikes of around 4% in 2022.
Big luxury names like Chanel and LVMH’s Louis Vuitton have been raising prices over the past several years, maintaining the exclusivity of their brands, while Hermes had made more slight adjustments.
UBS estimates Louis Vuitton raised prices by 9.6% in 2020 and 3.7% in 2022, compared to Hermes’ price hikes of 1% and 2.1% those years.
Hermes said it has created 4,300 jobs, including 2,900 in France, over the past three years, and planned to hire more people this year.
($1 = 0.9399 euros)
(Writing by Mimosa Spencer and Ingrid Melander; Editing by Emelia Sithole-Matarise)
