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Hermès sees continuous growth and plans new production to cope with demand

French luxury house Hermès confirmed this week plans to build two leather factories in France in 2012 to cope with rising demand after third-quarter sales were hampered by capacity constraints.

The new plants will increase capacity by 20 percent when they’re fully operational in 2 1/2 years, Hermes Chief Executive Officer Patrick Thomas said today in an interview to Bloomberg. The Paris- based company also plans to increase textile production in 2012, he said. “There is nothing we can do by the end of the year,” Thomas, adding “Production capacity is not a short-term issue. It is a long-term thing so we do it step by step.”

Hermes raised its full-year targets today, saying in a statement that revenue may rise within a range of 15 percent to 16 percent at constant exchange rates. The new goal, revised from a growth estimate in August of as much as 14 percent, is contingent on the ability to meet higher demand during the year- end holiday season, the company said.

Third-quarter sales climbed 16 percent to 683.2 million euros, beating the 662 million-euro average of three analyst estimates compiled by Bloomberg. Stripping out the effect of currency fluctuations, sales advanced 18 percent.

Europe’s sovereign-debt crisis won’t have a major effect on Hermes’s sales this year, Thomas said.“We might have a difficult 2012,” he said. “You have quite a few incentives to buy and not to buy and one of them is confidence.”

Hermes may raise some prices “at a reasonable level” in 2012 due to “significant” raw-material cost increases, particularly for silk, cashmere and crocodile skin, Thomas said. The company won’t increase prices where the local currency allows the company not to, he said, citing Japan.

Quarterly sales increased 34 percent in the Asia-Pacific region, excluding Japan, 22 percent in the Americas and 20 percent in Europe, excluding France, stripping out the effect of currency fluctuations, Hermes said. Revenue rose 3.2 percent in Japan and 5.4 percent in France on the same basis.

Sales of leather goods and saddlery, Hermes’s largest product category, advanced 10 percent, excluding currency moves. Apparel and fashion accessories revenue rose 32 percent, while silk and textiles sales gained 24 percent.

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