Bags carry Hermes to record profit

A jump in sales of its trademark leather bags helped Hermes push its annual profits last year above one billion euros for the first time ever, results released Wednesday showed.

The French luxury goods maker said its 2016 net profit hit 1.1 billion euros ($1.2 billion), a 13 percent jump from the previous year but slightly less than the consensus forecast of analysts surveyed by the financial data company Factset.

The company said in February that sales had hit a record 5.2 billion euros.

“New records were attained, which proves the solid performance of Hermes this past year,” Hermes chief executive Axel Dumas said during a conference call.

The firm attributed the record performance to a 14 percent jump in its leather goods and saddlery unit, which includes its famous bags including iconic models such as the Birkin.

Recent investment in new workshops helped Hermes meet the growing demand for its leather goods.

“Development was supported by the sustained pace of deliveries and production, gaining from the capacities of the three new sites” in France, the company said in its earnings statement.

Perfume sales also grew, climbing by nine percent. Apparel sales were flat and watch sales slowed by three percent.

Sales rose in all geographical regions.

The operating margin rose to 32.6 percent of sales, another record, but much of the 0.8 point gain was due to the favourable impact of foreign currency hedges.

While Hermes “entered 2017 on a solid footing” the firm is “cautious faced with the global uncertainties that surround us in this very uncertain world,” said Dumas.

Nevertheless, Hermes targets an increase in sales at constant exchange rates. It signalled it would continue to follow its current strategy of keeping control over the creative process and know-how, as well as its communication strategy.

It announced a dividend payment of 3.75 euros per share, up from 3.35 euros last year.

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