Richemont feels the pain as China contains appetite for luxury

● Shares in Richemont fell sharply on Friday after the Swiss luxury-goods group signalled that sales growth had stalled in September, adding to fears of ebbing Chinese luxury demand.

Richemont said growth had fizzled out towards the end of the six months to the end of September, which it blamed on setbacks in the Asia-Pacific region.

The admission fuelled fears of a drop in Chinese demand for luxury goods amid global trade tensions which have hit the shares of other luxury groups such as France’s LVMH and Tiffany in the US.

By lunchtime in Zurich, Richemont’s shares were down 7% at SFr68.64 (R972), and about 25% lower than a year earlier.

“The market is extremely nervous. When you get this ‘end of cycle’ in luxury, stocks will be a lot more volatile,” said Jon Cox, equity analyst at Kepler Cheuvreux in Zurich.

He said, however, he did not believe the slowdown would be as severe as that which followed the clampdown on “gifting” by Chinese authorities.

Richemont said sales rose 8% at constant exchange rates in the half year, excluding its recent e-commerce acquisitions. But that implied a significant slowdown in September, as the luxury group had already reported that sales in the previous five months rose 10% on the same basis.

Burkhart Grund, Richemont’s finance director, told journalists that September’s sales in most regions had been “more or less in line with the previous months’ trend”. However, Asia-Pacific had been hit by severe weather conditions that had forced store closures in Hong Kong and deterred tourism.

In addition, revenues had been hit by a weaker Chinese renminbi, which further affected tourism sales, Grund said.

However, he said, overall group sales in October had been “in line” with the 8% reported in the first half of the financial year. “That’s what we’re seeing today in the month of October — very high growth is still here.”

Meanwhile, Richemont revealed 14% of its sales in the six months were made online. This year it took full control of Milan-based online retailer Yoox Net-a-Porter and bought UK-based Watchfinder, an online and shopbased seller of “pre-owned” luxury watches.

Including the acquisitions, total sales were up 21% at €6.8bn (R110bn) in the six months, compared with €5.6bn in the same period a year earlier.

Johann Rupert, Richemont’s chair, has pushed to overhaul the group’s sales channels

The market is extremely nervous. When you get this ‘end of cycle’ in luxury, stocks will be a lot more volatile Kepler Cheuvreux analyst

and last month announced a joint venture with Chinese e-commerce giant Alibaba. On Friday, he warned of “growing volatility in consumer demand”, partly the result of economic and geopolitical instability.

This year’s acquisitions boosted revenues in Europe in particular, which reported a 28% rise to €2bn in constant currencies. Excluding online distributors, sales rose only 1% and in the UK they contracted, Richemont said. Operating profits, at €1.1bn in the six months, were 3% lower than a year earlier after acquisition- and disposal-related charges of €159m. — © The Financial Times