Hermès profits increase

Luxury fashion house Hermès has reported a 7.4 percent rise in 2005 operating profit of 383.5 million (£264.8 million). Net profit increased 15 percent to 247 million, up from 214 million euro in 2004. Annual turnover rose 7.2 percent to 1.43 billion, due mainly to Japanese sales growth and strong growth in other Asian Pacific countries.

The operating profit fell below analysts’ expectations; they had predicted an increase to about 395 million euro. HSBC analyst Antoine Belge told the FT that Hermès was not performing as well as its competitors and that a 10 million euro provisions cost was the cause for profits falling below expectations. He added that he believed the company was overvalued, largely due to takeover speculation, but thought that the share price would remain unchanged thanks to confidence in the luxury sector and strong sales in Asia.

Hermès now has 13 sales outlets in China, where it said it sales were particularly strong. The company opened its second store there in the fourth quarter. Directly operated stores saw sales rise 10 percent. This strong performance through directly owned stores, where margins are higher, led the company to increase investment in new stores this year. Last year the majority of investments were directed towards increasing production capacity for leather goods and for expansion and renovation of the company’s distribution network. Hermès plans to open about 20 stores in 2006, including Seoul, Tokyo, Bangkok, Hangzhou, Paris and Amsterdam. Investments are derived from cash flow, which increased 7 percent to 310.8 million euro.

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