Richemont Group has been benefiting from its fast-growing jewelry business, but a slight slowdown in the division, weak watch sales and operating losses at online distributors Yoox Net-a-Porter and Watchfinder worried investors.
Watch sales have been under pressure, particularly in Richemont’s biggest market Hong Kong, where anti-government protests have scared off tourists and battered spending in the Chinese-ruled city.
“Hong Kong is very exposed to watches and jewelry, the market was down around 10% in the first quarter, then we had a severe drop in the second quarter,” Chief Financial Officer Burkhart Grund told investors during a call on the results.
The protests in the region hurt its business, but its strong mix of luxury brands, it’s mainly-ultra-high-end positioning, and its deep dive into online retail largely protected it elsewhere.
Sales rose 9% at actual exchange rates to €7.397bn and 6% at constant exchange rates. It saw growth in all regions, distribution channels and business areas, led by the Jewellery Maisons and its online ops that include Net-A-Porter, Mr Porter, The Outnet, Yoox and Watchfinder.
It also reported double-digit sales rises in China, Korea, Japan, the US and the UK, which outperformed its other locations, although there’s no denying that the “difficult environment” in Hong Kong was a problem.
Operating profit was up by a below-expectations 3% to €1.165bn with a 15.7% operating margin that was down from 16.6% a year earlier. And net profit fell 61% to €869m. That latter figure may look like devastating news, but the company said it was “broadly stable when excluding the prior year period’s post-tax non-cash gain of €1.378bn on the revaluation of the [YNAP] shares held prior to [the] buyout”. And profits are also being impacted by its investment programme in its giant business.
Chairman Johann Rupert talked up the Feng Mao JV in China between Alibaba and YNAP. The soft launch of the Net-A-Porter flagship store on Tmall Luxury Pavilion on September 30 marked Feng Mao’s debut and “represented an important first step in the development of our long-term partnership with Alibaba,” the chairman said. And he added that the recent acquisition of Buccellati “will help Richemont benefit from the long-term potential of the jewellery market” and the deal with Alber Elbaz “will bring a valuable dynamic to our group”.
Digging deeper into the H1 performance, the company said that “in a volatile environment”, its business showed “resilience”. But its Fashion & Accessories Maisons “posted limited sales growth and profits.” However, golf-course-to-city apparel brand Peter Millar saw a “strong performance” and sales of leathergoods at Montblanc and Chloé grew, while the Americas and Japan outperformed. Total division sales rose only 1% to €941m, although the operating result swung from a loss a year ago to a small €3m profit.
YNAP/Watchfinder posted 32% sales growth to €1.179bn but “operating losses increased [to €194m] as we invested to strengthen their market position and technology leadership”. Watchfinder “made good progress with its internationalisation” and is now in France, Hong Kong, China and Germany, as well as its core UK market.
And the Jewellery Maisons saw sales rising 8% to €3.736bn and “delivered a high level of profitability.” But Hong Kong hurt the Specialist Watchmakers and they saw “muted” sales growth (up 1% to €1.567bn).
Regionally, European sales rose 7% to €2.221bn, on the back of strength online and in jewellery. The UK recorded double-digit sales growth, which was good news after a decrease in the previous year, while sales in France and Switzerland fell on the back of lower tourist spending, notably from Chinese clients.
Sales in Asia-Pacific rose 7% to €2.729bn, despite the Hong Kong issues, and Japan saw 13% sales growth to €647m, underpinned both by good domestic spending and by tourists.
The Americas was always going to be difficult this period as the previous year had seen 42% growth. This time round it saw an 11% sales rise to €1.347bn (but only 6% currency-neutral), driven by the US.
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