Hermes Warns Profit Increases Won't Continue, Concerns About Ability to Meet Future Demand

Posted on September 1, 2011

The San Francisco Chronicle reports that Hermes can't supply enough stock to meet demand at its stores. Japanese and U.S. sales have been strong for its luxury items, such as handbags and scarves, but for some reason it just can't get the manufacturing end of the business up to speed.

Patrick Thomas, CEO of Hermes International SCA, said on a conference call that the company's net income increased 49% to 290.9 million euros ($420 million) in the first six months from 194.6 million euros a year earlier. Sales were up 22% to 1.31 billion euros. Unfortunately, that increase will not continue because the company cannot keep pace with demand.

Thomas said, "We haven't yet seen a reduction in the number of people coming into our shops, not even in Japan [which suffered to major natural disasters]....July and August was not quite at the level of last year. This is not at all due to a drop in the number of people in our stores. There are stores where we are a little tight on stocks. This isn't an alert. It's not serious. We are selling at the rate we are producing."

Thomas said the company would try to increase production goals by 8 or 9% to meet demand over the next few years. Hermes is also facing "very steep" increases in the costs of raw materials such as leather, silk, textiles, silver and gold. The company said it will try to limit the retail price increases in 2012, but we have a feeling that the cost of a Birkin bag and a handmade scarf are both going to rise again, very soon.