French luxury goods maker Hermes said on Friday that foreign exchange rates hit profitability and would lead to a drop in its operating margin this year.

The company known for its Kelly leather bags and printed silk scarves posted a decline in operating margin in the first half to 32.6 per cent from 33.1 per cent a year ago and said its full-year margin would be below the 32.4 per cent level in 2013.

Last month, Hermes reported a worse-than-expected sequential slowdown in second-quarter sales growth of 5.8 per cent against 10.1 per cent in the first quarter, hit by a slump in Japanese demand.

First-half operating profit was €621 million, up from €584 million in the year-earlier period.

Net cash, which has been rising steadily in recent years, amounted to €946 million.

Hermes reiterated its mid-term objective of revenue growth at constant rates of around 10 per cent.

Reuters