The «Super-Rich» Brand

Hermès, one of the benchmarks of luxury industry worldwide, announces its results for the fiscal year, which show a net profit growth of 8.7% to €860 million. Meanwhile, sales increased by 10% to over 4,100 million euros. In the last four years it has increased revenues by 70%, exceeding for the first time the mark of 4 billion, surpassing even a historical industry player as Gucci.

Operating profit increased by 7% to €1.3 billion, while its operating margin has declined by nine percentage tenths to 31.5%. Also its net profitability (measured by net margin) has been reduced to 20.8%, the lowest level of the group since 2010. This reduction in margins is certainly bad news for the company, which has achieved significant industry recognition in recent years for being able to maintain a high growth rate without hurting profitability.

This is the explanation why the price has fallen following the publication of these results. However, the fact is that this year has set several production facilities to meet growing demand for its products, hiring 700 new workers, which would partly justify the increase of costs and, therefore, the decrease of the profitability.

Hermès grew in all geographic regions, led by America (+15%), followed by Japan and the rest of Asia (+13%) and Europe (+7%), where the company has been able to clearly overcome the crisis. In terms of business segments, it also grew in all except watches division (-11%). Again Leather Goods and Saddlery led the growth (+15%), followed by Ready-to-wear and Accessories (+12%), Perfumes (+10%) and Silk and Textiles business line (+8%).

To reward its shareholders, the company has announced two measures: an increase of almost 10% of its dividend to €2.95 per share and the distribution of an extraordinary dividend of €5 per share. The dividend yield will reach 2.5% this year, which is not bad at all. The group reiterated its targets for 2015: sales will rise 8% at constant exchange rates and operating margin will be around 31%.

Worth to remember that the sales target is lower than the traditional of the company, which has always stood on a growth target of 10%. This decline, already announced, was justified by the size of the group, the difficulties of the sector and the movements of the major currencies of the markets where the company operates.

As we mentioned before, investors have received these results with declines for the stock, which has fallen as much as 3 percentage point, althought later this fall has moderated. However, shares go up 30% in the last twelve months and 5% since the beginning of 2015. Its PE exceeds 31 times, well above the industry average, in a clear reflection that the company has the market confidence.