Hermes reports 9% sales rise but flags some weakness, shares down 

By Mimosa Spencer and Tassilo Hummel

PARIS (Reuters) -Shares in French luxury group Hermes fell on Wednesday after it reported a rise of 9% in quarterly sales boosted by continued strong demand for its handbags, but showing some signs it is not totally immune to a wider luxury downturn. 

Sales for the second quarter to the end of June reached 3.9 billion euros ($4.50 billion), up 9% at constant currency rates, Hermes said, broadly in line with analysts' expectations for a 10% rise.

The appeal of the brand's famous Birkin, Constance and Kelly bags so far has shielded the group from headwinds in the luxury sector, while growth at Hermes's smaller fashion and silk divisions slowed and perfume and beauty sales contracted.

"This is a sign the market is staying difficult", Bernstein analyst Luca Solca said.

Shares in Hermes, France's most valuable company by market capitalisation,  fell by as much as 3.9% in early Paris trade.

Executive Chairman Axel Dumas said the group noticed weaker demand from first-time clients and so far does not plan further price hikes this year.

This year the group raised prices by 7% globally, with an additional 5% hike specifically in the United States, where the company flagged it would fully pass on the effects of tariffs to clients.

These rises would probably suffice to offset the 15% tariff rate agreed between the Trump administration and the EU, Dumas said, although the company still awaited details of how exactly the charge would play out. 

Hermes maintains tight control over production, raising it at a steady pace of about 6% to 7% per year, frustrating some shoppers who have to wait months for a handbag. 

That strategy has helped the company buck an industry slowdown as big fashion labels like Chanel, Kering's Gucci and LVMH-owned Louis Vuitton and Dior grapple with declining sales. 

A prolonged slump in China has pushed the focus of European luxury labels to the United States this year, although demand there has been rocky due to a volatile stock market and fragile consumer confidence.

"I don't see any fundamental changes in the sales climate in China at the moment," Dumas said, adding that he still saw China's long-term potential as intact, with no structural changes in consumer sentiment.

Consultancy Bain forecasts worldwide luxury goods sales will fall by between 2% and 5% in 2025 after a 1% decline last year.

Shares in Hermes have risen 2% since the start of the year, outpacing the sector along with Cartier-owner Richemont, which has benefited from a surge in sales of high-end jewellery but is trading flat. 

($1=0.8657 euros)

(Reporting by Tassilo Hummel; Editing by Kim Coghill and Clarence Fernandez)