Hermes’ strong 2016 signals upturn for luxury sector
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Hermes’ strong 2016 signals upturn for luxury sector

French fashion house Hermes wowed investors with strong full year earnings for 2016 on Wednesday. The company – which is best known for its $10,000 birkin bags and printed silk scarves – saw strong sales in its leather goods division, which makes up 50% of its total sales. This has prompted some observers to claim that we are witnessing the beginnings of a broader recovery for the luxury goods market.

Hermes has seen its share price rise by 37% over the last 12 months

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SOURCE: Yahoo Finance

The company reported a 13% rise in net profit for the year, and increased its dividend by 12%. It did not provide guidance for 2017, but stated that it would open three stores in China, Brazil, and Turkey, and launch a new perfume.

Hermes is not the only retailer in the sector to report improvements. LVMH and Kering have both previously reported gains in 2016. This turnaround comes after a difficult few years for luxury. Cooling demand in China – due to a combination of factors, including a government crackdown on gift giving, and the increasing sophistication of Chinese luxury shoppers – has impacted the sector. Terrorist attacks in Europe have also played a part in convincing travellers to bypass some of luxury’s most famous hotspots.

Hermes’ CEO Axel Dumas addressed these concerns directly, saying: "We did better than we expected in 2016 and we are entering 2017 on a solid base but remain cautious in view of an uncertain environment."

Disclosure

Dominion holds Hermes International in its Global Trends Luxury Fund.


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