Hermès joins the luxury comeback with strong sales

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Strong sales growth at Hermès are the latest sign of an uptick for luxury retailers.

The French luxury retailer said its sales rose 6.6 per cent in the fourth quarter of the year to €1.5bn compared to the same period last year and adjusting for currency effects, just beating analyst expectations of a 6.5 per cent rise.

Sectors showing the biggest sales growth for the quarter were perfumes, up 16.9 per cent, silk and textiles, up 11 per cent, and leather goods, up 8.5 per cent on a currency-adjusted basis.

Total revenue for the year was €5.2bn, up 7.4 per cent from 2015 on a currency adjusted basis. Hermès expects operating profit for 2016 to be slightly higher than the previous year.

The figures come after strong results from rivals LVMH, Burberry and Richemont last month. Luxury retailers have had a tough couple of years amid a slowdown in Chinese consumption and falling tourism in Europe due to terrorist scares.

But third-quarter results for 2016 started to show an uptick for luxury retailers, helping Citi’s index of European luxury names to outperform the Euro Stoxx index of European companies for the first time in four years.

Hermès said it would pay an interim dividend of €1.5 a share, to be paid out at the end of the month.

It added that despite “growing economic, geopolitical and monetary uncertainties around the world”, it maintained an “ambitious goal” for revenue growth.

Luca Solca, an analyst at Exane BNP Paribas, said that Hermès stock could now be overvalued.

We believe that the Hermès multiple is bound to move back toward the industry average over time. Assuming that Hermès is different and will stay different over time may carry significant risk for the long-term investor. Besides, if we are right in forecasting a strong 1H17 for the luxury sector, even short-term exposure to Hermès, given its defensive nature, would bring no joy.

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