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UPDATE 2-Hermes bullish on luxury market, profits jump

Published 08/31/2010, 08:35 AM
Updated 08/31/2010, 08:40 AM

* H1 operating profit 304.5 million eur

* 2010 operating margin to rise at least 1 percentage point

* 2010 sales could rise 12 percent

* Shares down 3.8 percent after steady rise since July 20

(Adds CFO comments, analyst comment)

PARIS, Aug 31 (Reuters) - Hermes said prospects for the global luxury industry were strong, after a rebound in spending on its leather handbags and silk scarves helped it increase first-half operating profit by more than half.

Hermes again slightly raised its financial targets for the full year, forecasting on Tuesday that sales could rise 12 percent at constant exchange rates while its operating margin would improve by at least 1 percentage point.

Hermes, known for its printed silks and 10,000 euro leather handbags, is benefiting from a rebound in spending on luxury goods after suffering during the global downturn. Demand is especially strong in China, where it opened two stores in the second quarter and extended its distribution network.

"The trend (in the market) is extremely favourable and makes us confident for the coming years," finance head Mireille Maury told Reuters in a phone interview.

The luxury goods industry, whose revenues fell 8 percent last year according to U.S. consultants Bain & Co, is climbing out of its worst downturn in decades, buoyed by travelling shoppers from emerging markets.

Italian jeweller Bulgari sees an "aggressive rise" in profits this year, the Wall Street Journal quoted its head as saying on Monday. Belgian luxury lingerie retailer Van de Velde said on Friday it was targeting a double-digit percentage rise in core earnings in 2010 after reporting sharply higher first-half profit.

Luxury cosmetics group L'Oreal last week posted forecast-beating results and said demand had held up, while Italian fashion house Versace said earlier this month China's growing appetite for luxury goods would help it post higher sales in 2010.

Hermes posted a 52 percent rise in first-half operating profit to 304.5 million euros ($387.4 million). Net profit rose 55 percent to 195 million, the company said.

The operating margin rose to 28.3 percent in the first half from 22.8 percent a year ago, it added.

Hermes had already raised its 2010 sales growth target to 10 to 12 percent from 5 percent on July 20 after second-quarter sales beat its expectations and predicted a 1 point rise in its operating margin.

Shares in the company have risen steadily by 28 percent since then, and the stock pared some of its gains on Tuesday, falling 3.8 percent to 141.3 euros by 1231 GMT.

Referring to Hermes' new forecasts, Natixis analysts wrote: "This upgrade, which is timid in the light of the very good first-half performance, comes with a reminder that the basis for comparison in the second half will be tougher."

Maury dismissed speculation about a possible change in the family holding in Hermes, which has surfaced as the shares have risen.

"There is no change ... or intention to change the family shareholding," Maury said, adding that the family shareholders shared a coherent view on the strategy of the group. (Reporting by James Regan and Pascale Denis; Editing by Mike Nesbit and Erica Billingham) ($1=.7861 euros)

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