The worst is over
2016 was a tough year for Richemont* shareholders as the company started the year above R110 before sliding to below R80 as a sense of gloom settled over the share and its results. But the recent trading update for the third quarter to end December shows that the business managed a turnaround since the bleakness of the first half of the year.
Sales increased 6%, with the Asia Pacific region doing especially well. Here sales were up 9% after sliding 10% in the first half. Watch sales were the sore point as the company was even forced to buy them back from the sales channel after sales fell 17% in the first half. But in the third quarter this division recorded a modest 2% decline, suggesting a strong reversal in fortunes. I have always said that while luxury goods will have tough times every so often, people’s desire to own such products will not fade. Concerns about smart watches and fitness trackers are also misplaced as expensive watches are not about function but rather about showing off one’s wealth. After the update Richemont was trading back at above R100, not cheap but a fair price for a quality stock.