French luxury group Hermes reported weaker than expected first-quarter sales on Wednesday as the Iran war hit spending in the Middle East as well as in Europe, with fewer tourists visiting Paris or London and buying designer items.
Investors’ hopes for luxury demand to recover this year have been dashed by the conflict which has dented Dubai mall sales and sent energy prices soaring, hitting consumer confidence.
Hermes, which carefully controls production and sales to maintain exclusivity, has been the most resilient company in an industry-wide slowdown, but even it was not immune to the conflict’s impact. LVMH and Kering earlier this week both reported sales were hit by the war.
Overall sales of products including Birkin and Kelly bags, silk scarves and perfume rose by 5.6% in currency-adjusted terms, Hermes said, lower than a Visible Alpha analyst consensus of 7.1% growth.
Sales in the Middle East region fell 6% in currency-adjusted terms to 160 million euros, from 185 million euros in the first quarter last year.
“We had very good growth, double-digit growth in January and February and then the month of March was an abrupt halt,” said Chief Financial Officer Eric du Halgouet, adding that sales in luxury malls in Dubai and other Gulf shopping hubs dropped by 40% in March.
Though only accounting for 4.4% of sales, the Middle East was the fastest-growing region for Hermes last year.
WEAKER TOURISM HITS AIRPORT SALES AND EUROPE LUXURY HUBS
Hermes, which caters to the ultra-wealthy with handbags over $10,000, said a drop in tourist numbers had hit sales in concession stores at airports and in the Middle East, as well as in Britain, Italy and Switzerland, where Gulf shoppers are a key driver.
Sales in France declined 2.8% due to the drop in tourism. In Asia, the biggest region by sales for Hermes, revenue grew by just 3.5% in currency-adjusted terms as air travel disruption also had an impact there, du Halgouet said, particularly Singapore and Thailand.
The U.S. was a bright spot, with currency-adjusted sales up 17.2%.
Currency fluctuations took 290 million euros ($342 million) off Hermes’ revenue in the quarter, leading to a 1% drop in reported sales to 4.07 billion euros, from 4.13 billion euros a year ago.
($1 = 0.8482 euros)
(Reporting by Helen Reid)
