Richemont feels the pain as China con­tains ap­petite for lux­ury

Sunday Times - - Business Times -

● 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

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