Richemont rings in the changes

The incredible run of Richemont shares over the last six months paused on Friday as results underwhelmed and chairman Johann Rupert warned the luxury watch market is not out of the woods.

The company announced turnover down 4% to €10.6 billion, operating margin down 200 basis points to 16.6% and operating profit down 14% to €1.7 billion.

Diluted earnings per share fell 46% to €2.1. The share price, having risen from R81 to R114 over the last seven months, promptly fell to R108.76 on Friday.

Of concern to Rupert is the global glut of luxury watches, and more specifically, the response of competitors. Facing slowing demand, but excess production, Richemont bought back (and then destroyed) watches from its retail sales channel.

“Today at our major maisons our ‘sell in’ [wholesale to retail] is less than our ‘sell out’ [retail to consumer] so our stock is reducing. The second half of the financial year was better than the first – particularly in the sale of jewellery, leather goods and writing instruments. The US, Richemont’s largest market, resumed growth while mainland China, now the group’s second largest market, enjoyed strong growth along with Korea, the UK and Macau. If it wasn’t for the product buy-backs, sales would have fallen by 2%, rather than the reported 4%.

Alert to the need to remain nimble in today’s world, the new financial year will usher in much change at Richemont.

At the AGM later this year shareholders will be asked to elect nine new directors to the board: four executive directors and five non-executive directors. Among the non-executives are Rupert’s son Anton as well as Nikesh Arora, a former top Google executive.