Weak results but new highs possible
The luxury goods group saw operating profit plummet in the past year, but chairman Johann Rupert believes the business has excellent long-term prospects.
goods group Richemont had a challenging year, with sales declining by 4% yearon-year in the 12 months to end March, and operating profit declining by a massive 14%.
Richemont, which was founded by billionaire businessman Johann Rupert, owns some of the world’s leading high-end brands, including Cartier, Van Cleef & Arpels, Piaget, Chloé, Alfred Dunhill and Montblanc.
The group reported a challenging environment in its luxury watches business in particular, which saw sales decline by 11% to €2.88bn and operating profit fall 57% to €226m. These declines were partly attributed to a buyback programme by the wholesale business to remove excess supply from retail stores. The watches that were bought back were then destroyed.
Speaking at the release of the results on 12 May, Rupert said
It reported growth in sales in the US, its largest market, as well as in mainland China, Korea, the UK and Macau.
Richemont made a decision to act on production overcapacity in the face of slowing demand, but that its competitors continue “force feeding the system like geese producing foie gras. I think from our side, we will be fine but if the whole industry would act rationally, it would be quicker for everyone,” Moneyweb reported.
Its jewellery division reported a 2% decline in sales to €5.9bn, while other businesses, which include leather goods and writing instruments, saw a 2% increase in sales to €1.8bn, Richemont said. It reported growth in sales in the US, its largest market, as well as in mainland China, Korea, the UK and Macau. Sales in Europe declined 9% to €3bn, while the Middle East and Africa saw a similar decline with sales falling 9% to €885m.
Headline earnings per share were €1.913, compared with €2.882 in the 2016 financial year. Richemont said volatility and uncertainty in the geopolitical and trading environments are “likely to prevail”, but that it believes its business is “unique” with “excellent long-term prospects”.
After forming a high at 12 175c/ share, Richemont pulled back towards the support trendline of its primary bull trend. It managed to bounce on that trendline and recuperate most of its losses. Though, Richemont is now range-bound between 12 175c/ share and 7 850c/share, and upside momentum seems to be decelerating as Richemont approaches its prior high at 12 175c/share.
However, if support holds at 10 650c/share, Richemont will most likely trade through 12 175c/share and form new highs. Despite the global easing in demand for luxury goods, Richemont is working on improving the company and remains an attractive investment. (Also see page 19.) It has strong cash flows and a robust balance sheet. Richemont proposed an increase in the dividend of 5.9% to 1.80 Swiss francs a share. Go long: Support retained at 10 650c/share could see Richemont defy current resistance at 12 175c/share. Go long above that level as the upside short-term target is at 16 500c/share. Go short: Downside through 10 650c/share could see Richemont retest the 9 500c/ share level. Continued selling would highlight key support at 7 850c/share or Richemont could reverse above its support trendline – as it has done before.