Hermes sees no improvement in tourist traffic in France

French luxury goods maker Hermes said on Thursday it had not seen any improvement in tourist flows in France in the second quarter and did not expect any while the country remained in a state of emergency.

Hermès - Spring-Summer2016 - Womenswear - Paris - © PixelFormula

Many luxury brands have seen their sales plummet in France since November's deadly attacks in Paris, with the Brussels and Nice killings further scaring off tourists, who in Europe represent more than half of luxury brands' sales.

"We do not see any improvement in tourist traffic in France and we will not see one while we are in a state of emergency which prevents customers from coming," Hermes Chief Executive Axel Dumas told journalists in morning conference call.

"The terrorist attacks have weighed heavily on France."

French lawmakers this week approved a six-month extension of emergency rule after last week's truck attack on holiday crowds in Nice, the third deadly assault in just 18 months for which Islamist militants have claimed responsibility.

Dumas said Hermes' sales in France, which make up 14 percent of total revenue, were driven by demand from local customers. The company's sales in France rose nearly 9 percent at constant exchange rates in the second quarter to June.

Dumas said he did not know yet what impact Britain's decision to leave the European Union would have on Hermes and added the company's business in the country was not very significant.

Hermes, known for its 7,000-euro Kelly bags and 300-euro printed silk scarves, posted higher than expected second-quarter sales of 1.25 billion euros ($1.38 billion), up 8.1 percent at constant exchange rates. Analysts had expected around 5 percent growth.

It expected operating profitability in the first half of 2016 to be one percentage point higher than the same period last year thanks to foreign exchange hedging contracts.

Regarding the second half of this year, Hermes said it expected sales growth of leather goods, which represent half of its turnover, to be lower than in the same period last year, when it received a boost from new plants.

"All in all, another set of reassuring figures from Hermes," said Rogerio Fujimori at broker Royal Bank of Canada Capital Markets.

In April, Hermes said it had inaugurated its 15th plant, for which it would hire some 280 artisans.

For the full year, Hermes said it expected leather goods sales to rise 12 percent at constant exchange rates.

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