GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Hermes A Great Long-term Investmetn

August 14, 2014 | About:
cody56

cody56

1 followers

Hermes International S.A. (RMS),(HESAF),(HESAY), is a French manufacturer of quality goods that was established in 1837. The company today specialize in leather, lifestyle accessories, perfumery, luxury goods, and other ready-to-wear. Since the 1950s, Hermes' logo has been the Duc carriage with horse.

Company history and operations

Hermes was founded by Thierry Hermes in 1837 as a harness workshop on the Grands Bouslevards quarter of Paris. The company was dedicated to serving European noblemen. Thierry Hermes created some of the finest wrought harnesses and bridles for the carrige trade. His son Charles-Emile Hermes took over management and moved the shop in 1880 to 24 rue du Faubourg Saint-Honoré, where it remains today and where the new leader introduced saddlery and started retail sales.

In 1922, the company introduced the first leather handbag and established its first shops in the United States in 1924. Hermes introduced the first women's couture appeal collection; it was previewed in Paris in 1929. During the 1930s Hermes produced some of its most recognized original products. Hermes in 1935 introduced the leather Kelly Bag, which was unofficially named after Grace Kelly when she appeared in a movie with it in the 1950s, and in 1937 introduced its scarves. It also introduced the Chaîne d'ancre bracelet and the riding jacket and outfits joined the classic collection. In 1949, Hermes launched its silk tie and its first perfume Eau d'Hermès. Hermes began to run into problems in the 1970s despite its apparent success. It began to fall compared to competitors; some believe this was caused by the firm's insistence on exclusive use of natural materal for its products, unlike its competitors that were using new man-made material.

Jean-Louis Dumas became the chairman in 1978 and had the firm focus on silk and leather goods and ready-to-wear products. The firm began to add new product groups with its traditional techniques. He brought in designers Eric Bergére and Bernard Sanz to revamp the appeal collection. During the 1980s the firm strenghtened its hold on suppliers. In the 1980s tableware became a strong segment for the firm. In the 1990s the firm continued to reduce the number of franchised stores by buying them up and opening more company-operated boutiques.

List of designers throughout the years:

  • Lola Prusac
  • Jacques Delahaye
  • Catherine de Karolyis
  • Monsieurs Levaillant
  • Nicole de Vesian
  • Eric Bergere
  • Claude Brouet
  • Tan Giudicelli
  • Marc Audibet
  • Mariot Chance
  • Martin Margiela
  • Jean-Paul Gaultier
  • Veronique Nichanian (current men's-wear designer), Christophe Lemaire (current women's-wear designer)

The firm has 14 product divisions encompassing leather, scarves, ties, men's wear, women's fashion, perfume, watches, stationery, footwear, gloves, enamel, tableware and jewelry. Hermes' sales composed of 30% leather goods, 15% clothing, 12% scarves and 43% other. The company does not license any product and keep a tight control over the design and manufacturer of its products.

Finances

Hermes has gross margins of 68.12%, operating margins of 32.56% and pretax margins of 32.01%. The company has 34.94 per share in revenues, diluted ESP of 7.07, cash per share of 7.56 and cash flow per share of 8.79. Hermes has a return on equity of 35.92%, return on assets of 24.37%, and a 5 earning per share growth of 21.13%. The company's clothes and accessories segment increased 18%, its bags and luggage segment increased 5%, its Asia Pacific segment increased 17% and its Americas segment increased 15%.

Valuation

10 year earnings per share

Date Earnings Per Share
12/12 7.07
12/11 5.66
12/10 4.00
12/09 2.74
12/08 2.76
12/07 2.71
12/06 2.50
12/05 6.79
12/04 5.70
12/03 5.88

Hermes has an average ESP of 5.00 per share. It has a solid balance sheet and produces $8.79 per share in cash flow. With gross margin of 68.12%, that makes this company an consumer monopoly. Hermes is a great long-term investment if its shares fall to $150 per share. Until then just wait for the opportunity to buy this consumer monopoly and hold it for the next 20 years and ride the growth demand for luxury goods in China to a huge return on your investment.


Rating: 5.0/5 (2 votes)

Voters:

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK