Hermes has reported a resilient performance in the first quarter of 2009, with sales up 3.2% to E428.4 million. Turnover was driven by sales of leather goods, especially in Asia, while favorable currency effects helped to further boost revenue. However, a weaker performance in other product categories and softening demand in Europe pose problems for the future.
Leathergoods and saddlery, which accounted for almost half of total revenue for the quarter, continued to be Hermes' top performer, registering a sales uplift of 21.7% (10.2% at constant exchange rates). Sales of bags were strong in Asia, particularly in China and South Korea. Sales of silk scarves and fashion accessories were also quite resilient given the current climate, up 5.4% and 2.6%, respectively. Meanwhile, the group's perfume, watches and tableware divisions suffered double digit sales declines as the highly discretionary nature of these products has led to fewer orders from wholesale partners that have begun cutting their inventories.
The group enjoyed solid growth in Asia, with sales up 25.7% to E99.4 million in Asia Pacific (excluding Japan). Sales in Japan were up 3.8% to E96.1 million, boosted by favorable exchange rate effects. However, at constant exchange rates, sales in Japan actually fell 19.3%. Sales in Europe were down 5.6% to E161.4 million, while in the Americas, sales rose 6.1% to E64.7 million but declined 5.3% at constant exchange rates.
In spite of the global downturn, Hermes continues to invest in developing its retail network. It opened two new stores during the first three months of the year (one in Korea, the other in the US) and took over a concession in Japan. The company is wise to focus on developing its own store network, as sales of its trademark scarves and leather goods, which make up a large percentage of total sales, appear to be holding up at its own branches.
Hermes' strong start to the year illustrates that those retailers on the upper echelons of luxury that are less exposed to the suffering watches and jewelry sectors are in a better position to weather the financial storm. However, while sales to specialized distribution networks such as department stores are likely to deteriorate further in the year ahead, Hermes' more pressing concern will be a prolonged downturn in mature markets such as Europe, the US and Japan. While the company has been proactively developing its presence in emerging markets such as China, a severe downturn in the traditional markets from which it derives a large share of total sales will hamper growth prospects.
Source: Verdict Research