PARIS: Luxury goods maker Hermes cautioned on Thursday that a strong euro could hamper its ability to maintain record high profitability achieved in the first half as demand recovered.
Hermes and rivals such as LVMH and Kering have all started to see rising demand in mainland China and improving tourist spending in Europe, but the euro’s strengthening this year has raised concerns it could hurt the luxury sector’s recovery.
Hermes, known for its $10,000 Birkin bags and $400 printed silk scarves, said first-half operating income from recurring operations rose 13 percent to a record high of €931 million ($1.11 billion), as sales advanced by 9.7 percent.
Its operating margin hit a record high of 34.3 percent of sales in the first half, but CEO Axel Dumas said that performance may not be extrapolated to the full year and that a stronger euro could impact profits next year.
“We try to be ambitious but are cautious in a very volatile environment,” Dumas told reporters.
He said Hermes was fully hedged against a stronger euro for 2017, but his comments about the currency sent Hermes shares down 2.4 percent in mid-session trading, dragging down the shares of Kering and LVMH as well.
The euro is up sharply this year, partly reflecting an improving euro zone economy, but this has made products sold in the bloc more expensive for overseas consumers and tourists.
Hermes shares, which are up around 10 percent this year and hit a record high in April, trade at 35.6 times estimated 2018 earnings against 21.5 times for LVMH and 20.4 times for Kering.
“Hermes has a defensive stock status. Many market players buy the stock blindly, thinking it is too good to fail. The problem is that any slight change in the tone of its management or any piece of bad news can cost you dearly,” said Gregoire Laverne, fund manager at Roche-Brune Asset Management.
Laverne said Roche Brune did not own Hermes shares at present but it was a stock at which they were looking.
Hermes’ first-half operating margin was boosted by a rebound in the luxury goods industry, which had suffered in the past couple of years when demand in China slowed down and a series of deadly attacks in France deterred some tourists from traveling to Europe.
Richemont reported higher sales on Wednesday and Hermes’ Dumas said the fundamental business trends within the luxury goods industry remained positive.
Hermes said it was keeping an “ambitious” medium-term goal for revenue growth at constant exchange rates despite growing economic and geopolitical uncertainties.
Hermes sees risk from strong euro after record first half
Hermes sees risk from strong euro after record first half
Closing Bell: Saudi main index closes in red at 10,414
RIYADH: Saudi Arabia’s Tadawul All Share Index closed lower on Wednesday, shedding 38.85 points, or 0.37 percent, to finish at 10,414.06.
Total trading turnover on the benchmark index reached SR3.46 billion ($920 million), with 123 stocks advancing and 134 declining.
The Kingdom’s parallel market Nomu also shed 41.61 points, or 0.18 percent, to close at 23,428.67.
The MSCI Tadawul Index edged down 0.45 percent to 1,368.36.
Arabian Drilling Co. was the best-performing stock on the main market, with its share price rising 6.8 percent to SR102.90.
Naqi Water Co. gained 4.30 percent to SR58.25, while Saudi Ground Services Co. advanced 3.78 percent to SR38.42.
Tihama Advertising, Public Relations and Marketing Co. saw its share price fall 4.95 percent to SR16.31.
AlAhli REIT Fund 1 also declined 3.53 percent to SR6.29.
On the announcements front, United Mining Industries Co., listed on the parallel market, said it has begun commercial production of gypsum board at its plant in Yanbu.
In a Tadawul statement, the company said the financial impact of the project’s commercial production will be reflected in the first quarter of 2026.
United Mining Industries Co.’s share price was unchanged, closing at SR42.54.
Dkhoun National Trading Co. said its shareholders approved the board’s recommendation to distribute interim dividends on a semi-annual or quarterly basis for 2025.
According to a Tadawul statement, shareholders also approved transferring the balance of the company’s statutory reserve, valued at SR2.43 million, to retained earnings.
Dkhoun National Trading Co.’s shares saw no trades and closed at SR65.
