Hermès seeks to soothe worries about coronavirus impact

Luxury handbag and scarves maker Hermès said it was seeing a “potential normalisation” of its business in China given that only four stores remained closed of the 11 that were originally shut down because of the coronavirus. 

Axel Dumas, chief executive and an heir of the billionaire family that controls the company, said the supply chain was also functioning normally given that 80 per cent of the production is in France. 

“It’s too early to know when the rebound will come in China since we’re reopening the stores with limited hours in some cases,” he said on Wednesday. 

Hermès does have a few small production sites in Italy, where there has also been a cluster of cases in the past few days, but Mr Dumas said no stores or sites were closed to date there.

The luxury industry is bracing for the impact of the epidemic, which has killed more than 2,700 and spread from China’s Hubei province to dozens of countries. Chinese consumers, shopping both at home and when travelling abroad, accounted for roughly 40 per cent of the €281bn spent on luxury goods last year, according to Jefferies, but drove 80 per cent of the growth.

Bernstein Research surveyed 30 luxury chief executives and chief financial officers and found that they expected a total hit of €30bn to €40bn to their top lines, or a 9 to 11 per cent reduction for 2020. Groups such as Richemont and Swatch, with more reliance on watches and high-end jewellery, are the most exposed. 

While the impact of the crisis on the first quarter was hard to predict at this stage, Mr Dumas said: “Our strategy of favouring local clients in each market and the attractiveness of our products should allow us to weather the crisis.”

Nor did the leather goods manufacturer famous for the Birkin bag give any figures in terms of annual guidance for the year, merely promising “ambitious” revenue growth. 

Hermès posted fourth-quarter organic sales growth of 13.4 per cent to reach €1.7bn in revenue, a deceleration from the previous quarter’s 15 per cent, with a notable slowdown on organic sales growth in Asia at the end of the year. The metric strips out the effect of currency movements and acquisitions, and is closely followed by investors. 

North America was particularly strong in the fourth quarter because of new store openings, including New York and San Francisco.

Bernstein analyst Luca Solca said the fourth quarter was “strong as expected” and that “growth is bang in line with consensus”.

Annual sales reached €6.9bn last year, up 12 per cent on a comparable basis, while net profit reached €1.5bn. Hermès will propose a €5 per share dividend, in line with last year. 

Its shares fell 1.5 per cent on Wednesday morning, and are down 0.3 per cent this year, less than the 10 per cent decline for larger rival Kering and the 8 per cent slide for sector leader LVMH. All three shares had risen sharply in 2019 as investors sought out the rapid growth and high profitability of the luxury sector.

Read more about the coronavirus impact

Subscribers can use myFT to follow the latest ‘coronavirus’ coverage

[optin-cat id=7010]