Richemont makes up for lost time
The market’s faith in Richemont appears to have been vindicated by the latest update from the luxury goods company.
Richemont’s share price has soared 34% in 2017. Richemont and Naspers are almost wholly responsible for the JSE top 40’s 16% gain.
On Tuesday, the owner of Cartier, Montblanc and JaegerLe-Coultre said operating profit for the six months ended-September would be about 45% higher against the previous six months and as much as 80% higher year on year.
The year-on-year performance has been flattered by 2016’s exceptional inventory buy-backs, where Richemont took watch stocks that were not selling and destroyed them rather than cheapen the appeal of its high-end luxury brands. That cut sales in the watch division 11% and slashed operating margins to just 7.8%.
Now the expected profit increase comes on the back of an improved trading performance in which sales have grown 10% in reported currencies and 12% on a constant currency basis.
Richemont “seems to have benefited from a massive comeback of Chinese luxury consumers”, wrote Christian Weiz, an analyst at Baader-Helvea. Statistics from the Federation of the Swiss Watch Industry showed a 2.7% rise in watch sales in Hong Kong in August.
Mainland China was Richemont’s second-largest market in the year endedMarch, after the US.
The federation said growth in watch sales was “entirely” attributable to watches priced at more than Sf3,000 (R41,000). Watches costing less than Sf200 continued to post sales declines.
Last week, fellow luxury goods house LVMH reported a market-beating 12% increase in third-quarter sales, even as CEO Bernard Arnault cautioned investors to be circumspect about second-half trade.
Companies in the sector have been among the best performers on stock markets worldwide in 2017: LVMH has gained 32% year to date, Dior has climbed 38% and Ferrari has surged almost 97%.
Richemont’s share price gain in 2017 added about $1.8bn to chairman Johann Rupert’s personal wealth, according to Bloomberg. Two-thirds of analysts surveyed still had buy recommendations on the share, with a 12-month target price of R129.40.