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When it comes to luxury, vive la France!
Economy

When it comes to luxury, vive la France!

Monday, 18 February 2019
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Christophe Roulet
Editor-in-chief, HH Journal

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3 min read

Hermès and Kering have both reported record results for 2018, with no sign of a downturn whether in China or in the fourth quarter.

At this year’s Salon International de la Haute Horlogerie (SIHH), Hermès once again turned heads with its Arceau L’heure de la lune, an “original interpretation” of the moon-phase complication using two moving discs, one for the time, the other for the date, that seemingly float above the dial, which is incrusted with two mother-of-pearl moons, making one complete sweep in 59 days. As they do, they reveal the different faces of the moon in the two hemispheres. And because Hermès is never short of an idea or two, it was also one of the few brands to make bold and launch a completely new collection at the January fair. Galop d’Hermès is a women’s watch line which Hermès entrusted to Ini Archibong, a seasoned designer but taking his first steps in the watch world. As it’s so often said, Hermès likes to do things its own way. Or, in the words of Laurent Dordet, boss of La Montre Hermès, it “uses integrated expertise to develop a frankly different brand of creativity.”

Hermès's sales climbed 14% in Asia (excluding Japan) over the last three months of 2018.

Latest figures from the company suggest it is right to do so. Very right! Its watch division posted a 7% increase in revenue for 2018 to €168.6 million (+9.9% without currency swings). Better still, this upward trend continued during the fourth quarter, when sales recorded a rise of 14.4%. By way of comparison, over the second half-2018, business slowed significantly for Swiss watchmakers, particularly in December when exports fell by 2.8%. For Hermès, it was an altogether different picture; the brand recorded consolidated revenue of €6 billion in 2018. That’s an increase of 7.5% (10% at constant exchange rates). As well as watches, all the business lines performed well to end the year on a high, gaining 10.1% in the last quarter. Despite the “yellow vest” protestors in France, Europe stayed the course, as did Asia where China’s economic slowdown is a cause for concern among luxury brands. Certainly not for Hermès, whose sales climbed 14% in Asia (excluding Japan) over the last three months of 2018.

Kering forges ahead, driven by Gucci

As one last piece of good news, Hermès – which had net cash of €2.8 billion at end June 2018 – said that it expects operating margin for the year to be “close to 34%, after the exceptional level reached in 2017.” Unsurprisingly, its share price rose on the back of the announcement, while waiting for full-year figures to be reported at end March, and confirmed a more than 10% increase since mid-January. The effect was even more noticeable for Kering, whose share price soared after the group announced record results for 2018, boosted by Gucci’s phenomenal growth.

With revenue surging 37%, after climbing 45% in 2017, Gucci is the group's powerhouse.

The group sustained a remarkable increase in consolidated revenue, up 26% to €13.6 billion. Operating income rose by 47% to €3.9 billion, driving operating margin upwards by 400 basis points to 29%. Here too, there were no signs of a reversal in fortunes during the fourth quarter, when the group’s revenue gained 23.5%. “Sales among our Chinese clientele remained very dynamic in the fourth quarter,” said financial director Jean-Marc Duplaix at the earnings call. With revenue surging 37%, after climbing 45% in 2017, Gucci is very much the group’s powerhouse. Its revenue topped the €8 billion mark to reach €8.3 billion. Also worth noting is the 30% rise in revenue from Kering’s “Other Houses” which alongside Couture and Leather Goods encompasses Jewelry and Watches, with Girard-Perregaux and Ulysse Nardin. They were described as having “strong momentum”. Clearly, French luxury companies still have that “je ne sais quoi”.

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