Morningstar | Hermes Results In Line With Expectations; Firm Sees No Slowdown in Chinese Demand; Shares Rich
We are maintaining our EUR 332 fair value estimate for wide-moat Hermes after the company reported first-half earnings in line with numbers preannounced in July. We still hold the Hermes business in high regard, but we believe shares are expensive.Sales increased by 11% at constant currency, with Asia and the Americas continuing to drive growth with double-digit constant currency gains, but all other regions also contributed positively. Growth is still driven primarily by volumes, with small positive pricing and scope contribution. Among sectors, leather goods grew at a solid 8% at constant exchange rates, with strong demand across collections. Other Hermes sectors and ready-to-wear were the strongest performers, with 24% and 16.7% constant-currency growth, respectively. The shoes and jewellery ranges were the standout performers in those sectors, but both menswear and womenswear contributed positively to growth.
Hermes reiterated that the positive demand trends from Chinese consumers seen in the beginning of the year have continued in recent months, despite trade tensions and market turbulence. So far, no company in our luxury coverage has noticed a marked slowdown in purchases from this customer cluster. Hermes plans to launch its first own e-commerce website in China in the coming month. We believe it could attract additional customers to the brand, if the trends seen in U.S. and European markets hold. Seventy-eight percent of online customers are new to the brand, according to the company. The company is taking a cautious approach to luxury platform partnering in China (which we see as reasonable), looking to maintain discretion on brand representation and pricing.
First-half sales were negatively affected by exchange-rate movements, with an offsetting positive impact on gross margin. Profitability also benefited from a one-off gain on property sale in Hong Kong.
Hermes International is engaged in the manufacture, sale, and distribution of luxury goods primarily in France, rest of Europe, Japan, Asia-Pacific, and Americas. Co.'s activities can be divided into two segments: the distribution via Co.'s exclusive network and the distribution via specialist outlets. The distribution via Co.'s exclusive network comprises silks and textiles, leather goods and saddlery, ready-to-wear and fashion accessories (men and women's clothing, belts, jewellery accessories, gloves, hats and shoes), and other goods (jewellery and products of the art of living department). The distribution via specialist outlets comprise perfumes, tableware and watches.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.