PARIS — Aided by an expanded retail network, Hermès International said net profits climbed 8.7 percent last year to 268.4 million euros, or $351.3 million, up from 247 million euros, or $323.3 million, a year ago.
The results were boosted by a net capital gain of 14.1 million euros, or $18.5 million, from the disposal of the company’s stake in the camera firm Leica, but reflect a slowdown in Japan in the second half and the discontinuation of Hermès’ canvas bag lines, which clipped annual sales growth by 2.6 percent. All currency conversion is at average exchange.
Patrick Thomas, chief executive officer, called the numbers “satisfactory. I remind you that Hermès has a strategy of value growth, not volume.”
He said new stores and improved production capacity would boost its fortunes in 2007, with investments roughly on par with 2006, when Hermès spent 134 million euros, or $175.4 million, on stores and factories, including a stake in Vaucher, a watchmaker.
“We hope these new stores we are opening will help us make up for some of the shortfall in Japan,” he told WWD.
Demand for European luxury goods has sputtered in Japan, hampered by price increases to adjust for yen weakness. Hermès bumped up its tags by 8.5 percent this year in Japan, a market that accounted for 27 percent of revenues in 2006. “It doesn’t have a very good impact on sales,” Thomas said. “At the moment, we are at the bottom in Japan.”
Hermès said it plans to open or renovate 24 branches this year. Key openings include a unit in Osaka, Japan, next month, a Wall Street boutique in New York in June and the expansion of its Paris flagship on the Faubourg Saint-Honoré to 20,000 square feet from 16,000 square feet, set for a September christening. Thomas said more space would be given to women’s and men’s ready-to-wear and fashion accessories, as well as home products, as Hermès expands into space in an adjacent building.
In 2006, the French firm opened 10 new locations, including a Maison Hermès in Seoul’s Dosan Park, and renovated 16 units, including an addition to its Ginza flagship in Tokyo and a doubling of its boutique on Avenue George V here. The company ended the year with 145 stores and 107 concessions.
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Operating income rose 8.3 percent last year to 415.2 million euros, or $543.4 million, from 383.5 million euros, or $501.9 million, a year ago. Stripping out the impact of currency, the gain stood at 11.3 percent. Operating profits as a percentage of revenues has hovered around 27 percent since 2003, but improved from 20.7 percent in 1999.
Led by perfume, silk scarves and leather goods, sales last year, reported in February, increased 6.1 percent to 1.52 billion euros, or $1.99 billion, from 1.43 billion euros, or $1.79 billion, a year ago. Hermès is gunning for sales growth of 8 to 10 percent in 2007.