Reel­ing from sev­eral blows

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­

I’ve main­tained a bear­ish out­look on Richemont since last year – it was overex­tended and needed to cor­rect. The lux­ury goods group has grad­u­ally pulled back over the past months – at the time of writ­ing, it was down nearly 15% since the start of the year (also see page 20).

The group, whose brands in­clude Cartier, Mont­blanc and Van Cleef & Ar­pels, warned on 20 May that global trad­ing con­di­tions will re­main tough un­til Septem­ber, with sales in April drop­ping 18% from a year ago. Watch sales have been hit es­pe­cially hard, and Swiss man­u­fac­tur­ers are fac­ing high costs due to the strong franc. The Swiss Na­tional Bank stopped main­tain­ing the franc’s peg against the euro in Jan­uary 2015, lead­ing to a strength­en­ing in the cur­rency.

Watch sales, which were down 8% at con­stant rates, were also hurt by lower de­mand in Hong Kong and lower tourist num­bers in Europe fol­low­ing the ter­ror­ist at­tacks in Paris and Brus­sels. The seg­ment still con­trib­utes the bulk of Richemont’s rev­enue, ac­count­ing for 46% of sales in the past fi­nan­cial year (2015: 49.6%). For the year to end March, Richemont re­ported a 6% in­crease in sales to €11.1bn, with net profit jump­ing 67% to €2.23bn, short of an­a­lysts’ ex­pec­ta­tions. Op­er­at­ing profit was down 23%, partly due to the im­pact of for­eign ex­change fluc­tu­a­tions. Its net profit was boosted by an ex­cep­tional €639m gain re­lated to the sale last year of Net-a-Porter, its lux­ury on­line store. How to trade it: Stay short if Richemont en­coun­ters ma­jor re­sis­tance at 9 950c/share, as sup­port at 9 110c/share could then be retested. If that level should give in, next sup­port would be at 8 600c/share. Richemont would have to trade above 10 035c/ share to es­cape its cur­rent bear trend and above 10 675c/share to re­cover its pre­vi­ous losses. Fail­ing which, go short or stay short with a rea­son­able trail­ing stop-loss.

The Bal­lon Bleu watch by Cartier, one of Richemont's brands.

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