Hermes Weathers the Luxury Storm… For Now

@jshi809

After the recent attacks in France and the wild currency swings following Brexit (read: Buying Bags after Brexit and Brexit and the Asian Market), expectations for the luxury industry are at an all-time low. But it’s not all doom and gloom, especially if you’re already the king of the hill. Global luxury leader Hermes just released their financials for the first half of 2016, and while many expected the industry to be a bloodbath, the company seems to be on solid ground. Second-quarter revenue was up 6.2 percent to 1.25 billion euros ($1.4 billion).

Sales were up 8.1% in the first half (excluding currency shifts), crushing analyst estimates of 5.6%. Nimble foreign exchange hedging lifted operating margin in the period by 1% and the stock is up over 3% on the news (as reported by Bloomberg)

While demand for Birkin’s and Kelly’s still remains high, the biggest reason for the strong numbers is the performance of the leather goods and saddlery division. Accounting for almost half of the company’s revenue, leather sales rose a staggering 17% in the quarter, beating expectations of 13%.

To capitalize on this increased demand, CEO Axel Dumas noted that the company plans to increase production of leather goods. This is especially interesting given that competitors like Burberry are in the process of paring down their leather offerings. While other companies may have over saturated the market with their diverse accessories offerings, Hermes has held steady, allowing them to lean on leather in a tough market. While the company still doesn’t think it’ll hit 8% growth for the year, it’s in much better shape than experts thought and perfectly positioned to capture more market share from its struggling competitors. We’ll continue to watch this space.

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Hermes shares are leading luxury rivals in 2016. Pic courtesy Bloomberg.

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