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Hermès's Watch Business Continues to Slide

A new sales tax in Japan and dismal watch sales resulted in a slow second quarter.

Hermès' 2014 is shaping up to be a bit less impressive than its 2013. The luxury heritage brand, which banks on quality and exclusivity, had a notably slow second quarter this year, as it had previously warned analysts it would.

Sales rose 5.8 percent in the three months ending June 30 and were negatively impacted by fluctuations in exchange rates. Without those changes, growth would have amounted to 9.6 percent. Revenues totaled €963.4 million (about $1.32 billion).

A couple of factors contributed to the slowdown: One was Japan, due to weakness of the yen and a recent sales tax hike. Japan sales grew by nearly 22 percent in the first quarter of 2014, when shoppers were stocking up before the tax hike's implementation. The second quarter saw a sales decline of 6.3 percent.

The other factor: The brand isn't selling enough watches. Though sales of ready-to-wear and fashion accessories (like handbags) did well, growing 8.8 percent in the quarter, watch sales were down 15 percent. Hermès said the decline was due to poor wholesale sales, particularly in China. It's not a new problem -- the company said a sales slowdown in China hit its watch business in 2013 as well. It's all no doubt linked to the country's corruption crackdown, which has hurt other luxury businesses as well.

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Hermès is set to release results for the first half of 2014 in August, and warns that its operating margin "should be slightly lower compared to the first half 2013’s margin."