Hermes Profit Up 13% in 2016
French luxury company Hermes International (RMS.FR) said net profit for 2016 jumped 13%, as the company powered through tougher market conditions that weighed on much of the luxury industry.
Hermes, which makes iconic bags that sell for thousands of euros each, said net profit was 1.1 billion euros ($1.19 billion). Sales for the year rose 7.5% to EUR5.2 billion.
Challenging conditions in Europe in the aftermath of the Paris and Brussels terror attacks had little impact on the group. Hermes said sales rose 5% in France and 8% in Europe overall. The region has proved to be a weak spot for other luxury companies, as the attacks have prompted globe-trotting shoppers to say at home.
Hermes’s mainstay bags and leather-goods business weathered much of the turmoil in the sector, with sales rising 14%. The company reported record operating margins of 32.6%.
French luxury goods group Hermes said today it was starting 2017 on a solid footing after delivering record 2016 profits, providing further evidence of a broader recovery in the luxury goods industry.
Chief executive Axel Dumas nevertheless struck a cautious note for the year given underlying global political and economic uncertainties.
“We did better than we expected in 2016 and we are entering 2017 on a solid base but remain cautious in view of an uncertain environment,” Dumas told a conference call.
Hermes, known for its $10,000 Birkin bags and $400 printed silk scarves, said net profits had risen by 13% rise to a record €1.1 billion.
Its operating margin hit an historic high of 32.6% of sales compared to 31.8% in 2015, while the company also increased its dividend by 12%.
Hermes added it was keeping an “ambitious” medium-term goal for revenue growth at constant exchange rates.
The company’s sales growth had mainly stemmed from a strong performance at its leather goods arm, which makes 50% of group sales, while other divisions also performed well although its watches unit lagged.
Hermes joined other luxury companies such as LVMH and Kering in reporting an improvement in the sector, which has suffered from slowing demand in China, while Islamist militant attacks in France have also deterred tourists from Europe.
Several analysts expect the luxury goods sector to benefit in 2017 from improved consumer sentiment in China, tax cuts under the new US administration and robust Middle Eastern demand due to firmer oil prices.
Author: Maria Zota