Hermes (HRMS:PA) Record Profits Signal Recovery in Luxury Sector
French luxury goods group Hermes (HRMS.PA) said it started this year on a solid ground after announcing record Y 2016 profits Wednesday, providing further evidence of a broader recovery in the luxury goods industry.
Hermes, known for its $10,000 Birkin bags and $400 printed silk scarves, followed larger rivals LVMH (LVMH.PA) and Kering (PRTP.PA) owner of Gucci and Yves Saint Laurent in reporting an improvement in the sector.
CEO Axel Dumas said Chinese tourists were returning to Europe, but numbers were not yet back to previous levels, and many were favoring Britain and Italy “to the detriment of France”.
“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, after the group announced a 13% rise in Y 2016 net profit to EUR1.1-B ($1.2-B).
It increased its dividend by 12%. Its shares hit a record high this month.
Hermes’s sales growth last year mainly stemmed from a strong performance at its leather goods arm, which makes up 50 percent of group sales.
Mr. Dumas did not give a detailed guidance for Y 2017.
He said the group was looking at capital expenditure of between 280 and 300-M Euros, opening 3 stores in China, Brazil and Turkey and launching a new perfume.
He ruled out following larger rivals LVMH (LVMH.PA) and Kering (PRTP.PA) into eyewear.
Hermes shares rose 25% last year and are up nearly 10% YTD, hitting a record high of 436.90 Euros this month.
Hermes is trading on a P/E ratio of 46X, while LVMH is on a P/E ratio of 25X, and Kering is at 36X.
Analysts expect the luxury goods sector to benefit this year from improved consumer sentiment in China, tax cuts under the new US administration and robust Middle Eastern demand due to firmer Crude Oil prices.