Luxury goods maker Hermes cautioned on Thursday that a strong euro could hamper its ability to maintain record high profitability achieved in the first half as demand recovered. Hermes and rivals such as LVMH and Kering have all started to see rising demand in mainland China and improving tourist spending in Europe, but the euro's strengthening this year has raised concerns it could hurt the luxury sector's recovery.
Hermes, known for its $10,000 Birkin bags and $400 printed silk scarves, said first-half operating income from recurring operations rose 13 percent to a record high of 931 million euros ($1.11 billion), as sales advanced by 9.7 percent.
Its operating margin hit a record high of 34.3 percent of sales in the first half, but Chief Executive Axel Dumas said that performance may not be extrapolated to the full year and that a stronger euro could impact profits next year. "We try to be ambitious but are cautious in a very volatile environment," Dumas told reporters. He said Hermes was fully hedged against a stronger euro for 2017, but his comments about the currency sent Hermes shares down 2.4 percent in mid-session trading, dragging down the shares of Kering and LVMH as well. Hermes shares, which are up around 10 percent this year and hit a record high in April, trade at 35.6 times estimated 2018 earnings against 21.5 times for LVMH and 20.4 times for Kering, according to ThomsonReuters data.