Business Day

Richemont warns of 45% profit drop

- COLLEEN GOKO Re­tail Writer Business · Finance · Stocks & Markets · Consumer Goods · Investing · Financial Markets · Richemont · Cartier SA · Asia-Pacific region · Asia · Neil Brown, Jr.

IN­VESTORS are call­ing time on Richemont’s im­pres­sive growth of pre­vi­ous years, as the sparkle of the lux­ury goods sec­tor fades. In a trad­ing up­date re­leased on Wed­nes­day, the owner of Cartier warned that first-half profit would de­cline about 45%.

The usu­ally pop­u­lar rand­hedge share closed more than 4% down on the day.

In­for­ma­tion from fi­nan­cial mar­ket data com­pany Iress shows a year-to-date de­cline in Richemont’s share price of 24% from a 6.29% gain by the end of 2015. This year could mark the first time since 2008 that the com­pany ex­pe­ri­ences a sharp drop in value.

The Asia-Pa­cific re­gion has been its crown since 2001, with Richemont’s sales there gen­er­ally out­pac­ing group sales.

But Nic Nor­man-Smith, chief in­vest­ment of­fi­cer at Len­tus As­set Man­age­ment, said: “Chi­nese con­sumers have come un­der some pres­sure re­cently as their eco­nomic growth rate slows, and the an­ti­cor­rup­tion mea­sures put in place ap­pear to have also ham­pered de­mand for lux­ury goods.

“The share prices of lux­ury goods com­pa­nies have fared even worse, be­cause many in­vestors ex­trap­o­lated their strong growth and as­signed val­u­a­tions that were sim­ply too op­ti­mistic. In­vest­ing in even the best busi­nesses at too high a price can lead to sub­par in­vest­ment re­turns.”

Elec­tus Fund Man­agers eq­uity an­a­lyst Neil Brown said other fac­tors af­fect­ing the lux­ury goods mar­ket in­cluded a sur­plus in watch in­ven­to­ries, es­pe­cially in Asia; a slow­down in global travel, which is a key source of

lux­ury goods spend­ing; and a change in cus­tomer pref­er­ence to “travel ex­pe­ri­ence” over “shop­ping ex­pe­ri­ence”.

“Our Elec­tus clients do not own Richemont shares, as we still be­lieve that the share is over­val­ued. The five-month sales up­date was very dis­ap­point­ing, [es­pe­cially] the jew­ellery slow­down, as this area had pre­vi­ously been much more re­silient than watch sales,” Brown said. The Geneva-based group said sales fell 14% in the five months to Au­gust from the year-ear­lier pe­riod at ac­tual ex­change rates.

At con­stant ex­change rates, sales fell 13%.

Mer­gence In­vest­ment Man­agers port­fo­lio man­ager Dirk Steyn said the re­sults were on the ex­treme weak side of the con­sen­sus ex­pec­ta­tion. “There was a hope in the mar­ket that the Jew­ellery Maisons would have been more re­silient,” said Steyn. In its an­nounce­ment, Richemont said the “cur­rent neg­a­tive en­vi­ron­ment as a whole is un­likely to re­verse in the short term”.

Steyn said: “This is a much more neg­a­tive state­ment than some mar­ket par­tic­i­pants ex­pected and will af­fect the medium-term fore­cast of Richemont’s prospect, to be down­graded by an­a­lysts, and we should ex­pect the stock to re­main un­der pres­sure.”

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