Verbatim – Hermès inflames desires and poses questions
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Christophe Roulet
Editor-in-chief, HH Journal
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In the first quarter of 2010, Hermès probably achieved one of the best performances in the industry, with organic growth in sales of 20%. This result has sustained the group’s shares, especially with speculation rife over the possible acquisition of Hermès following the death of Jean-Louis Dumas.
“Hermès and the luxury industry is mourning the death of Jean-Louis Dumas, who was the group’s CEO from 1978 to 2006, and the member of its founding family seen as the uniting force among the heirs,” writes J.P. Morgan Cazenove in his weekly newsletter. “Jean-Louis Dumas died on Saturday 1 May. We think the growing rumours that the family might sell its 72% stake in the business could push the share price even higher. LVMH, widely seen as the prime candidate for an acquisition, might be feeling the pressure of the market, with Hermès shares already looking pricey. This pressure should, however, be eased by a counter rumour that, to acquire Hermès, LVMH might sell its stake in Moët & Hennessy, at a good price, and possibly to Diageo, why not, as the press were suggesting just a few months ago.”
So speculation is well underway, and has in fact been going for some time. When Jean-Louis Dumas left the group’s executive management in 2006 for health reasons, there was much talk of a possible sale, boosting the price of the share, which still enjoys some of the highest valuation multiples in the sector. According to Credit Suisse, Hermès shares are trading at 31.9 times estimated 2010 profits, compared to the sector average of 18.4 times profits, representing a premium of around 65%, with a market capitalisation of more than €10 billion.
Attracting plenty of attention
The first-quarter figures will certainly not dampen the share’s performance. On the contrary, with organic growth in sales of 20%, Hermès has greatly outperformed LVMH (+12%) and Gucci (+5%). Sales were clearly bolstered by strong growth in results in Asia, excluding Japan (+47%), and by a strong recovery in the United States (+25%). All divisions performed well, particularly leather goods, up 23% despite a difficult comparative basis (+10% for the first quarter 2009).
Jean-Louis Dumas kept his promise: having governed Hermès for 28 years, he turned the Parisian leather goods maker into one of the most prestigious luxury brands, with sales rising from €42 million to €1.9 billion last year. As the head of both the business and creative sides, it was Dumas who listed the company on the Paris Bourse in 1993, made it global, diversified it and established the brand worldwide, with a network of more than 300 stores. A highly defensive share and business, Hermès certainly has what it takes to attract attention.
