Hermès Warns 2016 Goals Are In Danger

The French maker of luxury handbags has warned that sales growth this year could be less than its target by weak demand.

Leeson. 12/02/2016

Even the most exclusive manufacturers feel the weak international demand. Hermès, the French house recognized as one of the most exclusive and luxury brands in the world, has announced that growth this year could be lower than the medium-term target of the company, which is an annual increase of 8% (disregarding the effect of exchange rates). It has also presented disappointing earnings in the last quarter of 2015. Specifically, sales increased 7.2% (ex-currency rate), its worst growth rate in six years. Its operating margin remained at around 31.5%, in line with the previous year.

Perfume Terres de Hermés. Cómpralo aquí
Hermès Terres Perfume. Click to buy

Blame it on China, but only in part. Besides the obvious drop in demand in that country, Hermes and many of its competitors are encountering problems in many other markets. These problems include lower global growth, especially in emerging countries, which had become the star for the industry before the maturity of their traditional markets. It is also the terrorism, which hit France late last year and is an element of concern for tourists when visiting Europe. In fact, these attacks in Paris led to the lower sales growth in the last three months of last year.

Las firmas como Hermes han capeado el temporal
Hermès belt. Click to buy

The news has come as a cold shower among investors, as they expected the French company would stay out of the general weakness of the sector, thanks to the aura of exclusivity that Hermès has been able to create around its brand. But after a very negative first reaction, the stock recovered positions (partly due to its very low liquidity). Anyway, the share price loses more than 20% in only three months.

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Hermès silk scarf. Click to buy

Disclosure: The Luxonomist not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.

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