Hermes reports drop in revenues in key leather-good sales amid waiting lists

Hermes International reported lower revenue from its key leather-goods division, which sells the Birkin bag and couldn’t keep up with demand for its products, highlighting a risk the French luxury goods maker runs by keeping production so tight.

Sales of leather goods and saddlery fell 5.4 percent at constant exchange rates in the fourth quarter. Analysts expected a 2.3 percent drop. The shares dropped as much as 8.4 percent.

Hermes leather items such as Kelly bags are becoming even harder than normal to find in shops. Normally Hermes gets almost half its revenue from that product category. The company will boost production capacity with new sites in the French towns of Louviers, Sormonne and Riom through 2024, plus a leatherworking school it opened in September.

“We are facing high demand, and we have a product that’s very hand-crafted,” Executive Chairman Axel Dumas told reporters in a call Friday. A Hermes bag generally takes a leatherworker 15 hours to make. “Unfortunately sometimes, there’s a waiting list.”

Total revenue rose 11 percent at constant exchange rates in the fourth quarter, just ahead of estimates.

Annual recurring operating income advanced to 3.53 billion euros ($4 billion), up from 1.98 billion euros a year earlier. Analysts expected 3.41 billion euros. The recurring operating margin reached a record 39 percent.

Hermes increased product prices last month by 3.5 percent on average worldwide. That compares to an increase of 1.5 percent a year ago. Dumas said the luxury company is sticking to a policy of price increases linked to input and labor costs, and it generally hikes prices once a year.

Top brands such as Chanel, Gucci and Louis Vuitton have also been increasing prices.

Hermes results come after Gucci owner Kering SA and LVMH SE reported results that beat analysts’ expectations. Luxury demand has experienced a V-shaped recovery from the pandemic as consumers spend the savings accumulated during the worst of the lockdowns on pricey rings, shoes and wallets as economies and stores reopen.

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