Reeling from several blows
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.