Hermès reports record high operating margin

There was no sign of waning demand for luxury goods in China from French luxury brand Hermès today as it reported a record high operating margin and an annual 8.9 per cent profit rise to €1.218 billion.

The silk scarves and Birkin bag brand raised its dividend and reported net profit up 6.8 per cent to €790 million – beating rivals such as LVMH and Gucci owner Kering which have all been hit recently by a sales slowdown in China.

Patrick Albaladejo, directeur general for strategy and image, said: “The results show the strengths of our business model of craftsmanship and quality."

Although other luxury goods brands have recently suffered from a crackdown by government in China on gift giving and the move away from heavily logoed products such as Gucci or Louis Vuitton bags, Hermès reported full-year Asian sales (excluding Japan) up 16 per cent.

Albaladejo added: “We observed two contrasting factors in China. On one hand the fight against corruption by government. This has particularly affected the watch industry where watches were used in gift giving. But on the other hand we have seen an increase in sophistication among Chinese consumers.

This is happening much faster in China than we have noted in other regions such as Japan previously. So customers in China understand the importance of beauty and craftsmanship. They are less tolerant of big logos. This is therefore positive for us as we have always been in the discreet luxury sector.”

He said that the group would increase its products in clothing and accessories to meet demand.

He explained: “Bags are our biggest segment and represent around 44 per cent of sales. But because these are handmade by our craftsman we have limited production –the growth is always limited to 8-10 per cent growth a year.

"This is because we have to train every new crafts person. So we have to grow in other areas where there is potential to increase production. So clothes and accessories such as jewellery, homewares and furniture have been growing well.”