Hermes International SCA share price down, announces record 2013 profit but fears slowdown in 2014

Hermes International SCA posted an 8.9% increase in its 2013 profit. The company also explained that its performance was not damaged by the decreasing luxury goods sales in China due to the fact that the overall sales in Asia, Europe and the U.S. kept its profitability to a record high. However, the company flagged risks that may stall growth in the luxury-goods industry in 2014.

Currently, Hermess products are some of the most expensive luxury goods, which makes the company popular among all kinds of customers and renders it one of the main competitors to brands such as Gucci and Louis Vuitton.

The French luxury-goods house said in its statement, which was cited by Bloomberg: “Hermes will continue its long-term strategy of expanding its distribution networks and protecting its supply sources.”

Hermes International SCA made an official statement, revealing that its operating profit for the last year reached 1.2 billion euros, and its full-year profit rose by 6.8% and reached 790 million euros. Its ready-to-wear and accessories unit sales were reported to have increased by 18% last year, and the sales in the companys perfume unit have risen by 15%. The company also revealed that its watch sales grew only by 1% due to decreased demand in China.

Hermes also said in its statement that the operating profit margins of the company increased to a record high of 32.4%, which is 0.3 percentage points higher than the operating profit margins reached in 2012.

One of the analysts working for Exane BNP Paribas – Mr. Luca Solca said in an e-mail, which was cited by Bloomberg, that Hermes International SCA “has the benefit of excess demand, waiting lists”. Mr. Solca, who is known for having a neutral recommendation on the companys stock, said that “given the limited amount of freely traded shares, the main interest today would be as a read-across to other names in the sector”.

However, the company warned that its operating margin will decline this year due to the weakening Japanese yen. Hermes said that currency fluctuations, unstable demand in China and political uncertainty in Russia will have a negative effect on the luxury-goods industry this year.

Hermes International SCA fell by 1.05% by 12:18 GMT in Paris to 235 euros per share, marking a one-year change of -8.25%. The company is valued at 25.07 billion euros. According to the Financial Times, the 17 analysts offering 12-month price targets for Hermes International SCA have a median target of 235.00 euros, with a high estimate of 295.20 euros and a low estimate of 190.00 euros. The median estimate represents a -1.05% decrease from the previous close of 237.50 euros.