Hermes Falls as Hand-Crafted Bags Take Time, Demand Unmet

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Hermes Falls as Hand-Crafted Bags Take Time, Demand Unmet
Credit: © Reuters.

By Dhirendra Tripathi – Hermes stock (PA: HRMS ) fell 4% in Paris trading Friday after the company’s self-imposed production caps limited its capacity to capture the waiting demand for its hand-crafted Birkin and Kelly bags in the fourth quarter.

At one point, the stock shaved off 8.4%, falling the most in five years.

The luxury goods maker generally caps volume growth in its leather goods production at 7-8% annually, making it a unique selling proposition for finicky consumers.

"It takes 15 hours for an Hermes bag. Even if there's a lot of demand, I’m not going to start doing them in 13 hours to raise production," Reuters quoted Executive Chairman Axel Dumas as saying.

That exclusive policy meant fourth-quarter sales at the leather goods and saddlery division were down 5.4% at constant exchange rates. The business accounted for 45% of 2021 revenue. Hermes said it will boost production capacity with new sites in France.

Investors could also be disappointed by the lack of a special dividend, Reuters quoted a Citi report as saying.

On the lines of its rivals Louis Vuitton (PA: LVMH ) and Kering (PA: PRTP ), Hermes raised prices too, by 3.5% on average this year. Hermes usually undertakes price hikes once a year while its mostly hand-made produce insulates it from much of the rise in energy prices.

Total revenue rose 11% to 2.4 billion euros ($2.7 billion), relying on about 30% growth each in ready-to-wear and accessories as well as silk and textiles.

Revenues grew above their 2019 levels in all regions except for France, where the absence of deep-pocketed tourists hurt business.

Annual net income rose 77% to 2.4 billion euros. Recurring operating margin for the year rose 8 percentage points to 39%. The company revenue in the current year will be higher.

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