Hermès decision to stop providing guidance seen as a gloomy sign by market

"In light of the current economic and currency uncertainty, we no longer wish to provide a written guidance," Chief Executive Axel Dumas told journalists on a conference call, adding Hermes continued to aim to outperform the market.

This was how the French luxury goods maker Hermès announced on Wednesday its decision to no longer provide an annual sales growth forecast starting next year given the increasingly uncertain trading environment.

"Abandoning the 8 percent guidance is a first sign that it probably can't and that it's growth will normalize," ventures Luca Solca from Exane BNP Paribas.

Hermès is trading at virtually twice than LVMH

"Hermes is trading on a price-to-earnings ratio of 33.7 times next year's earnings, virtually double that of LVMH. This can only be sustained if Hermès can continue to produce materially faster growth than the sector," further added the luxury goods analyst at Exane BNP Paribas.

Back to July, Hermès published its first-half sales saying that its full-year like-for-like sales growth could be below its medium-term revenue growth target of 8 percent, which it lowered from 10 percent two years ago.

In this vein, the company´s CEO explained that the brand’s trading at its shops in Nice, Cannes and Paris had suffered from the terrorist attack in Nice on July 14 and had still not recovered since.

The luxury house's first-half operating margin reached a record high 33.9 percent, up from 32.5 percent last year, which it said was boosted by favorable foreign exchange hedging contracts. For the full year, Hermès kept its target of operating margin slightly higher than 2015's 31.8 percent.

Hermès, which was – until now - the only major European luxury brand to provide a quantified sales growth outlook, said it was maintaining its guidance for 2016 as it reported a 13 percent rise in net profit to 545 million euros ($611.60 million).

On the back of the news, Hermès shares dropped 7.7 percent to the close of trading at the Paris Bourse, the sharpest drop in almost three months. This fall is especially pronounced when compared against the 24 percent the stock had gain this year as other luxury stocks had stagnated or fallen.

Image:Hermès Ready to Wear Men, Hermès Web