Hermes Warning Raises Concern Strong Euro to Erode Luxury Sales

(Bloomberg) -- Hermes International warned that profitability of the maker of Birkin handbags probably has reached a peak as the strong euro is set to erode 2018 sales, spurring concern that the luxury industry’s rebound may become rockier.

The operating margin will probably narrow after reaching a record 34.3 percent in the first half, executives said, almost double that of bigger rival LVMH. The stock fell as much as 3.4 percent in Paris.

Hermes executives said that in 2018 the currency tailwind will shift to a headwind. That comes a day after Richemont reported weak European sales growth due to the strong euro. The French company maintained what it called an “ambitious” goal for medium-term revenue growth as it expects to keep weathering “growing economic, geopolitical and monetary uncertainties around the world.”

“We continue to perceive a disconnect between Hermes organic growth performance and prospects and the premium it commands versus the sector,” wrote Luca Solca, an analyst at Exane BNP Paribas.