Published: WWD, Friday, May 12, 2006 Hermes Sales Gain 11.3% By Miles Socha PARIS A nose shy of its luxury peers, Hermès International said Thursday its first-quarter sales galloped ahead 11.3 percent to 361.5 million euros, or $435 million. At constant exchange rates, the increase stood at 8.8 percent. While the results were in line with expectations, Hermès was held back by production glitches in ready-to-wear and watches, which resulted in flat sales in those categories for the three months ended March 31. A slim 4.1 percent rise for high-margin handbags and luggage also disappointed analysts. Hermès blamed the slim increase on the discontinuation of a canvas line, which was seen as a threat to its upscale image. Mireille Maury, managing director of finance and administration at Hermès, noted that sales of leather handbags vaulted between 10 and 15 percent in the period, led by demand for Kelly, Birkin and Bolide styles. She also cited strong wholesale orders for the fall-winter rtw collection by Jean Paul Gaultier shown last March, and said that category and watches should improve for the balance of the year. Maury characterized April sales as in line with the first quarter. Perfumes logged the biggest gain. The new men's scent Terre d'Hermès contributed to a 45.8 percent gain, to 23.9 million euros, or $28.7 million. Sales of silk scarves and men's neckties gained 10.2 percent to 41.9 million euros, or $50.4 million, while jewelry and small leather goods rose 23.2 percent to 36.4 million euros, or $44 million. Dollar figures are at the average exchange rate. By region, Europe logged the biggest increase, up 16.4 percent to 127.7 million euros, or $154 million. Sales were up 6.4 percent in Asia to 169.1 million euros, or $203.4 million; 7.4 percent in Japan, to 100.8 million euros, or $121.2 million, and 2.6 percent in the Americas, to 55.3 million euros, or $66.5 million. Maury blamed a drop in tourism in Hawaii for the meager U.S. gains, but noted April showed a slight improvement in the region. She projected a 7 percent organic sales rise for the full year, during which Hermès plans to open or renovate 25 stores. Shares of Hermès have spiked over the past year due to speculation that members of the controlling Dumas and Hermès families might be willing to sell. However, initiatives such as a proposed poison pill "reinforce our view that nothing will happen any time soon," HSBC analyst Antoine Belge said in a research note Thursday.