Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hermes International SA (HESAF, Financial) reported a solid performance with a turnover of EUR7.5 billion, up 15% at constant exchange rates.
- All regions recorded double-digit growth, with France and Europe showing particularly robust performance.
- The company continues to invest in production capacity, securing its supply chain, and expanding its distribution network.
- Hermes International SA (HESAF) has increased its headcount by 1,200 people in H1 2024, reflecting its commitment to growth and employee welfare.
- The company maintains a strong financial structure with a net cash position of EUR10 billion, providing assurance for its long-term strategy.
Negative Points
- The gross margin rate dropped to 70.6% from 72.2% in H1 2023, impacted by currency hedges and increased costs.
- There was a noticeable slowdown in the watch sector, which did not perform as well as other divisions.
- The company faces challenges due to the depreciation of the Japanese yen and the Chinese yuan, affecting financial results.
- Increased administrative costs and cost of sales have grown slightly faster than revenue, impacting overall profitability.
- The company anticipates further gross margin pressure in H2 2024 due to continued currency impacts and inventory adjustments.
Q & A Highlights
Q: There has been strong growth in leather goods beyond your guidance of 15%. Is the annual guidance maintained at 15%? Will there be an increase in full-year stocks in leather goods? Also, could you explain the slowing growth in other sectors such as watches?
A: We confirm our guidance for the full year at around 15%-16%, with a price effect of around 6%-8% and a capacity factor of 6%. The increase in stocks is not linked to leather goods but to other products from other divisions. Watches have seen a diverging performance, but we are confident in setting the trend for watches and hope for improved performance. β Axel Dumas, Executive Chairman and Eric du Halgouet, Executive VP Finance
Q: Could you explain the consumption trends in China and Japan? Also, could you provide information on the reported loss of 6.2% of shares?
A: In Japan, we have a very local customer base with few tourists. In China, customers tend to buy locally, with many tourist sales in Europe. Regarding the reported loss of shares, we no longer publish figures for Nikola Precious shares since 2016 as we cannot control or oversee the sales. β Axel Dumas, Executive Chairman and Eric du Halgouet, Executive VP Finance
Q: Have you noticed any changes in the behavior of Chinese consumers regarding luxury goods? Also, could you comment on the margin differences in Asia Pacific compared to Japan?
A: Chinese consumers are saving more and spending less on luxury goods, influenced by the real estate market. They are looking for high-quality products, which is positive for us. We do not provide regional or country-specific margin breakdowns, but the drop in the share of China is very small and not significant. β Axel Dumas, Executive Chairman and Eric du Halgouet, Executive VP Finance
Q: Could you tell us more about the drop in gross margin and the impact of the Japanese yen's devaluation?
A: The gross margin drop is mainly due to currency effects and a slight drop in sell-through rates, especially in Greater China. We continue with our strategy of increasing prices at the beginning of the year and expect the yen to increase its value, which will influence our pricing strategy. β Eric du Halgouet, Executive VP Finance
Q: How do you see the environment in the US, and have you seen any meaningful changes at the beginning of the new quarter? Also, could you remind us of your CapEx and tax rate guidance for 2024?
A: The US market remains dynamic with double-digit growth. We expect to spend a little above EUR1 billion in CapEx for the full year, with an acceleration in the second half. The tax rate for the full year is expected to be around 28%. β Axel Dumas, Executive Chairman and Eric du Halgouet, Executive VP Finance
Q: Could you comment on the trends in Q3 and the potential impact of the Olympics in France? Also, what are your thoughts on pricing for next year?
A: We do not see any major changes in trends at the beginning of Q3. The Olympics may not be the best moment for us, but we expect to continue our trend globally. Our pricing strategy will continue to be based on the cost of goods inflation and exchange rates, with adjustments as needed. β Axel Dumas, Executive Chairman
Q: Could you elaborate on the OpEx inflation for the second half of the year and its impact on margins?
A: We expect to spend around EUR650 million on communication expenses, with an acceleration in the second half. We have slightly reduced the pace of recruitments but continue to reinforce our support functions and production capacities. β Eric du Halgouet, Executive VP Finance
Q: Could you help us understand the drivers behind the lower gross margin in H1 and whether the same level of pressure is expected in the second half?
A: The lower gross margin is mainly due to currency impacts and larger inventory in Greater China. This is a normal reserve based on our long-standing rules and is expected to continue in the second half. β Eric du Halgouet, Executive VP Finance
Q: What is the impact of currency hedges on EBIT for H1, and what are you expecting for H2? Also, how will the integration of UAE activities impact your business?
A: The impact of currency hedges for H1 is around EUR60 million, and we expect EUR160 million for H2. The integration of UAE activities will have a minimal negative effect due to reassessment of stock prices but should have no substantial impact on full-year revenue. β Eric du Halgouet, Executive VP Finance
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
