The Hermès International SCA store on Canton Road in Hong Kong, China. It is difficult even to get on the waiting list for an exclusive Hermès Birkin handbag. Picture: BLOOMBERG
The Hermès International SCA store on Canton Road in Hong Kong, China. It is difficult even to get on the waiting list for an exclusive Hermès Birkin handbag. Picture: BLOOMBERG

Paris — Luxury handbag maker Hermès International expects first-half operating profits close to the record level reached last year, as it posted solid second-quarter sales that augured well for the rest of the luxury sector.

Hermès’s strong sales increase in China shows demand for luxury goods in that country has remained resilient despite slower economic growth, and in spite of the current trade war between China and the US.

Hermès, whose Birkin handbags are worth more than a small car, said sales rose 7.2% to €1.46bn for the three months to the end June. Sales rose 12% at constant exchange rates, up from 11% during the previous quarter. Analysts expected a 10% increase.

The company said adverse currency swings represented a negative effect of €165m on its top line.

Sales in China kept on growing at a double-digit rate as in the past years, CEO Axel Dumas told reporters. Demand in China had not been affected by macro-economic uncertainties, he said, adding that the current trade war unraveling between the US and China would not have an immediate impact on Hermès.

"We have customers that travel," he said. "A trade war would be bad for everybody. I’d prefer there wouldn’t be a trade war, but I don’t think we will be the first company to be hit."

Given the good health of the Chinese market and solid growth elsewhere, the company expects its operating profitability in the first half of this year to be close to the record level reported in the first half of last year.

Earlier this month, British luxury goods company Burberry reported higher quarterly sales growth, and Hermès’s figures bode well for other luxury goods makers, such as behemoth LVMH, Gucci-owner Kering, or German fashion house Hugo Boss, which all depend on Asian markets.

Hermès will report financial results for the first half of the year on September 12. Profitability in the first half will be further boosted by the €50m capital gain Hermès made on the sale of its store in Hong Kong, the company added. Dumas said Hermès had cut its prices by 4% in China on July 1 after the Chinese government cut tariffs on imports.

Hermès, which derives the biggest chunk of earnings from leather goods, also posted strong growth in other divisions including in its fashion lines, perfumes and jewellery business. Its shares were flat at €539.40 in early session trading. The stock hit a record high of €609.45 in May and is up by about 20% so far in 2018.

Reuters