Hermès H1 results prove it triumphant in China, where others failed

Hermès has defied all the odds by reporting a 20 percent rise in operating income to 748 million euros for the first half of 2015, despite its heavy reliance on the slowing economy of China.

Likewise, half-year sales for the French luxury goods retailer also grew in Japan (+20 percent) and Europe (+7 percent).

On a related note, Hermès says sales in Asia excluding Japan grew by 7 percent in the first half of the year, “despite the difficult context in Hong Kong and Macau”.

Thus, net profit for the first six months of fiscal year 2015 at Hermès rose to 483 million euros, up from 413 million in the same period a year ago. Operating profit also increased, a 20 percent to 748 million euros. Finally, overall sales jumped 31 percent to 2.3 billion euros.

Hermès described the 14 percent growth in its leather goods and saddlery division as “remarkable”. Sales of its watches, however, were down 1 percent.

Hermès proves resilient to Chinese economy slowdown

Despite the positive results, the numbers came short of analysts polled by FactSet’s expectations: they estimated net profit to come in at 485 million euros and an operating profit of 733 million euros.

Referring to the recent string of companies changing their pricing to adjust their numbers internally across different markets, Hermès said it expects demand its handbags and fashion to remain resilient and grow 8 percent this year despite the risk of an economic slowdown in China.

“We’ve resisted this in the past,” said Hermès Chief Executive Axel Dumas.

“It is too early to tell what the effects will be” of the devaluation of the yuan and the latest declines in equity markets, Dumas further added. But he was confident that the company could hit the growth forecast.

Volatile currencies might affect H2 profits at Hermès

However, the French luxury-goods champion warned that volatile currencies will erode its profitability in the second half of the year with profit seen rising more slowly than sales. Indeed, Hermès warned that its operating margin will fall further to end at 31.5 percent over the full year.

Shares in the Paris-listed group were down 1.5 percent at 317 euros on Friday, as it warned that its operating margin for the full year would be lower than in 2014 owing to currency fluctuations.

The stock has declined 10 percent since China decided to devalue its currency earlier this month.

In this vein, it is worth remembering that earlier this month, Hermès was included by Citi in a list of 48 large companies with high exposure to the slowing Chinese economy. Citi estimated that between 20-25 percent of the company’s revenues came from China, recalls the ‘Guardian’.