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UPDATE 2-Chic handbags, perfumes boost Hermes Q2 sales

Published 07/21/2009, 06:15 AM
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* Q2 sales rise 3.9 percent at constant exchange rates

* H1 trend matches full-year target for steady sales

* Leather goods comparable sales up 21 percent in Q2

* Shares gain as much as 3.3 percent

(Adds details, CFO quotes, analyst quotes)

By Astrid Wendlandt, European Luxury Correspondent

PARIS, July 21 (Reuters) - French luxury goods group Hermes saw a better-than-expected improvement in trading in the second quarter, helped by consumers' crisis-proof appetite for its elegant handbags and stronger perfumes sales.

Hermes said on Tuesday it still expected full-year sales to remain flat and operating profit to fall slightly, which investors interpreted as too conservative but in line with the company's spirit of traditional guidance.

"We see this as conservative guidance considering that the group has already delivered flattish sales in the first half and that the comparable base will get much easier in the second half," Credit Suisse analysts said in a note.

Several brokers, including Exane BNP Paribas, said they would raise their forecasts for the year.

Hermes shares rose as much as 3.3 percent in morning trade and by 1005 GMT, they were up 1.7 percent at 100.30 euros. The upbeat trading update also helped push up shares in bigger rival LVMH, which was up 1.3 percent.

Hermes posted a 3.9 percent rise in comparable second-quarter sales to 446.6 million euros, significantly above many analysts' forecasts of a 2-3 percent decline.

Revenues had fallen 4.7 percent in the first quarter on the same comparable basis excluding currency effects.

During the period, Hermes's leather goods and saddlery division sales rose 21 percent on a like-for-like basis to 228 million euros, accounting for over half of total revenue.

Overall, first-half sales remained relatively flat, down 0.4 percent on a like-for-like basis.

"Barring any exceptional event, we expect the same trend for the second half," Hermes Finance Director Mireille Maury told Reuters in an interview.

"The good progression of our store business will continue and the contraction of our wholesale business as well," she said.

TAPPING NEW MARKETS

The maker of silk scarves and 10,000-euro leather bags said it planned to invest some 170 million euros this year opening and refurbishing shops.

Hermes is opening its first shop in Brazil in September, highlighting the extent to which the luxury group has not yet penetrated many emerging markets.

It is also opening another shop in Istanbul in September.

"Hermes' established brand reputation works in the company's favour in the current environment and we believe in the relatively defensive nature of the Hermes brand," said Dennis Weber, an analyst at Evolution Securities.

During the second quarter, perfume sales fell 5.3 percent on a like-for-like basis, an improvement against the 30 percent drop suffered during the first quarter.

The silk and textiles business rose 4.3 percent, against a 1.4 percent decline during the first quarter.

Meanwhile, revenue from ready-to-wear and fashion accessories rose 5.4 percent during the period reversing a decline of the same order during the previous three months. (Additional reporting by Blaise Robinson and James Regan in Paris; Editing by Dan Lalor and Marie Maitre) ($1 = 0.7063 euro)

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