French luxury group Hermes hikes dividend as margins reach record

French luxury goods firm Hermes , known for its $10,000-plus Birkin handbags, on Wednesday posted record margins for 2017 and said it would make an extraordinary payout to shareholders as well as hike its dividend.

The company joins rivals such as Louis Vuitton-owned LVMH and Gucci parent Kering in benefiting from a strong pick-up in the luxury goods market last year, as demand from Asian shoppers rebounded.

That fuelled strong sales growth at Hermes, while operating margins reached a new high of 34.6 percent, helped by high productivity at its leather goods workshops and the positive impact of currency hedges.

“It’s been a very good year, growth has been healthy and very profitable,” Hermes’ Chief Executive Axel Dumas told journalists. He added that sales trends at the start of 2018 had echoed the positive momentum of last year.

The company, also famed for its square silk scarves, said it was proposing a dividend against 2017 earnings of 4.10 euros ($5.03) per share, up 9 percent on a year earlier, and said it also planned an exceptional dividend of 5 euros per share.

Dumas said that hedging against foreign exchange swings would have a slightly negative effect on margins in 2018, however. European-based luxury goods firms are grappling with the effects of a strong euro.

Hermes, originally a saddle and harness specialist founded in 1837, in February reported slightly lower-than-expected sales for the fourth quarter of 2017, as it struggled to keep up with demand for its coveted handbags.

The firm is expanding its leather goods production capacity with new workshops in France.
It is also looking to boost online sales by gradually rolling out a new version of its website, with the revamped platform in China due by year-end.

Hermes’ operating income came in at 1.92 billion euros ($2.36 billion), up 13 percent from a year earlier and in line with analyst forecasts, while net profit expanded 11 percent to 1.22 billion euros. ($1 = 0.8149 euros)