Hermes Reopens Most China Stores Though Demand Remains Weak

(Bloomberg) --

Hermes International is seeing a “potential normalization” in China, though it’s too early to predict when the market will recover from the coronavirus outbreak that is hammering luxury spending, Chief Executive Officer Axel Dumas said.

The French luxury brand closed 11 stores in China earlier and has since reopened seven of those, he said on a call with journalists.

“It’s too soon to say things are going back to normal, but we are in a process of reopening,” Dumas said.

The Birkin bag-maker maintained double-digit earnings growth last year as ramped up production of leather goods and strong sales of ready-to-wear fashion, shoes and jewelry compensated for disruptions like political protests in Hong Kong and strikes in France. Fourth-quarter sales rose 11% excluding currency swings, matching analysts’ estimates.

Profitability remained close to record highs, with recurring operating income at 34% of sales even as the brand invested in a new cosmetics division. Hermes hopes adding products like lipstick, makeup and skincare will reinvigorate sales at its perfume counters around the world.

“Hermes should prove among the most resilient in the slowdown” caused by the coronavirus, Sanford C. Bernstein analyst Luca Solca said in a note. “Waiting lists for its iconic products should partially offset its relatively high exposure to Chinese nationals globally.”

Hermes growth in Asia, excluding Japan, slowed to 14% at the end of the year, compared with the third quarter’s 22% jump. Dumas said the impact of protests in Hong Kong was less than expected, as many tourists who canceled shopping trips to the territory still purchased elsewhere in the region. “We don’t see a reversal of trend in Asia,” he said.

Sales in the U.S. accelerated as business at new stores in New York and a renovated Hawaii flagship gathered steam.

Categories like fashion, jewelry and home goods grew faster than the flagship leather goods division. That could help reduce Hermes’s dependence on $9,000-plus Birkin bags.

©2020 Bloomberg L.P.

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