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UPDATE 1-Luxury goods company Hermes keeps financial goals as Q4 sales rise
February 8, 2017 / 9:19 AM / 7 months ago

UPDATE 1-Luxury goods company Hermes keeps financial goals as Q4 sales rise

* Hermes strikes confident note for 2017

* Shares fall, analysts cite pricey multiples on stock

* Company keeps financial goals (Adds CEO comments, shares, analyst )

By Dominique Vidalon and Pascale Denis

PARIS, Feb 8 (Reuters) - French luxury goods group Hermes kept its full year profitability goal on Wednesday after posting higher fourth quarter sales, which provided further evidence of a broader recovery in the luxury industry.

Hermes, known for its $10,000 Birkin bags and $400 printed silk scarves, struck an upbeat note for 2017 in spite of broader, underlying political and economic uncertainties.

“We believe we will continue to clearly outperform the sector because of fundamentals that rely on true know-how and creativity,” Chief Executive Axel Dumas told a conference call.

Hermes’ shares, however, fell 1.3 percent with analysts at Exane BNP Paribas and CM-CIC Securities saying the stock looked relatively expensive. Hermes shares rose 25 percent last year and the stock is up around 2 percent so far in 2016.

Fourth quarter sales reached 1.51 billion euros ($1.60 billion), with growth at constant exchange rates of 6.6 percent slowing from 8.8 percent in the third quarter. This compared with analysts’ expectations of 7.1 percent growth.

Hermes said growth was driven mainly by its leather goods arm, which makes 50 percent of group sales, while other divisions also performed well although its watches unit lagged.

Hermes joined other luxury companies such as LVMH in reporting an improvement in the sector, which has suffered from slowing demand in China while Islamist militant attacks in France have also deterred tourists from Europe.

Dumas said the sales improvement came from all regions, and highlighted positive signs for Hermes from Asia.

“We see a positive momentum in Asia. In China we are the most desired brand,” he said.

The group, which reports full year earnings on March 22, kept its forecast for a full year 2016 operating margin being slightly higher than 2015’s 31.8 percent of sales.

Hermes added it was keeping an “ambitious” medium-term goal for revenue growth at constant exchange rates.

However, both Exane BNP Paribas and CM-CIC Securities said Hermes’s shares were now looking relatively expensive.

Exane BNP Paribas pointed to how Hermes’ was trading on a premium of 31 percent to the rest of the luxury goods industry, based on its 2017 price-to-earnings ratio of 34.8.

“We believe that the Hermes multiple is bound to move back toward the industry average over time,” added Exane BNP analyst Luca Solca.

$1 = 0.9377 euros Reporting by Dominique Vidalon; Editing by Sudip Kar-Gupta

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