WWD Digital Daily

Staying Focused

Richemont downplayed a potential bid for Tiffany & Co., saying it plans to focus on growing its current highjewelr­y brands.


LONDON — Just keep swimming.

With its top and bottom lines under pressure from myriad internal and external forces, Cartier’s parent Compagnie Financière Richemont intends to move forward steadily — and swiftly — in fiscal 2019-20 and beyond.

Undaunted by LVMH Moët Hennessy

Louis Vuitton’s pursuit of Tiffany & Co., by unrest and declining sales in Hong Kong and by the cost of transformi­ng Yoox Net-a-porter into a state-of-the-art e-commerce machine, Richemont is propelling itself through choppy waters at home, and abroad.

“Global events are beyond our control and while we have remained responsive to market challenges, we have also continued to invest in our maisons, reinforcin­g our long-term approach to developing Richemont’s businesses,” said Johann Rupert, the group’s chairman and shareholde­r of reference as the company reported modest sales growth and flat profits in the first six months to Sept. 30.

Rupert added that as Richemont makes strides in the digital space and on the ethical, sustainabl­e and profit-making fronts, “we must remain vigilant amid global uncertaint­ies. The strength of our balance sheet, our financial discipline, and the agility, creativity and skills of our teams, position us well for the long term.”

The ongoing unrest in Hong Kong dented growth in the first half, with Richemont reporting a 9 percent increase in sales to 7.40 billion euros. At constant exchange, growth was 6 percent, and came from all regions, distributi­on channels and product categories.

That compares with the first three months of the year, when sales climbed 12 percent at actual exchange, and 9 percent at constant ones.

Hong Kong, which usually generates 11 percent of group sales, now contribute­s 8 percent. During the period, the region witnessed a double-digit sales decline due to store closures during the often violent prodemocra­cy and antiextrad­ition protests.

“Hong Kong was — and is — an important market for us, and we will not abandon it. We have been here before, and we will adjust. It will remain a key market for us and for the traveling Chinese,” said Burkhart Grund, Richemont’s chief finance officer.

During a call on Friday he added that conversati­ons with local landlords about lowering rental costs had already begun, and noted that demand from Hong

Kong had shifted to Mainland China. The company has also witnessed a strong pickup in Korea as well as in key “gateway cities” in the region, Grund added.

Some 18 directly operated boutiques opened in Asia Pacific during the half.

Jérôme Lambert, Richemont’s chief executive officer, said Hong Kong is critical from a service point of view, and is the site of the company’s retail academy. “Hong Kong is also very important for the local clientele, so we are mobilizing all of our teams there,” he said.

Underlying profits in the first half were broadly flat at 869 million euros. On a reported basis, they fell 61 percent due to the nonrecurre­nce of last year’s posttax, noncash gain of 1.38 billion euros from the revaluatio­n of the YNAP shares before Richemont purchased the group last year.

Operating profit rose 3 percent to 1.17 billion euros, while operating margin slipped to 15.7 percent. Stripping out YNAP and the online retail division, operating margin would have been 21.8 percent.

Japan saw the fastest growth in the six-month period, climbing 13 percent at constant exchange, bolstered by domestic demand ahead of the October VAT increase, while Asia Pacific as a whole was up 5 percent. Asia Pacific accounted for the largest share of group sales, 37 percent, in the period.

Europe notched a more modest uptick of 7 percent, fueled by the weak pound in the U.K., while the Americas region rose 6 percent and the Middle East and Africa dipped 1 percent at constant exchange.

Jewelry, once again, was the standout category, with sales climbing 8 percent to 3.74 billion euros, driven by a high-singledigi­t increase in Cartier and Van Cleef & Arpels jewelry and a low-double digit increase in those brands’ watches.

Growth at Cartier came from jewelry, as well as the Panthère and Santos watch collection­s. Cartier revived its Crash watch to mark the re-opening of the Bond Street store, and customers across the globe have been fighting to get on the waiting list. The new Clash jewelry collection has been such a hit that Richemont said it plans to ramp up production in time for the holidays.

At Van Cleef & Arpels, demand for the Alhambra and Perlée collection­s “remained remarkably strong,” the company said.

The specialist watch and “other” division, which includes Richemont’s fashion and accessorie­s houses such as Chloé and Dunhill, each notched 1 percent growth in the six-month period.

Growth in the watch division suffered partly from the troubles in Hong Kong, and partly from Richemont’s much tighter checks on wholesale distributi­on. In the “other” division, the upscale sports and golf wear brand Peter Millar was the main driver behind the modest growth.

Asked during the call about LVMH’s pursuit of Tiffany, Grund declined to comment on the takeover attempt, but suggested that Richemont was not threatened by an Arnault-owned Tiffany.

“When you have three of the best names in jewelry — Cartier, Van Cleef & Arpels, and now Buccellati — you focus on going from strength to strength. Over the past decade-and-a-half, Van Cleef has been a true success, and we plan to do the same with Buccellati.”

In September, Richemont purchased Buccellati in a 230 million euros deal, with the Italian jeweler’s results consolidat­ed as of Sept 30.

Richemont derives some 80 percent of its earnings from fine jewelry, while 50 percent of all sales stem from Cartier and Van Cleef, according to analysts’ latest estimates.

Last month, when news of LVMH’s ambitions for Tiffany broke, Luca Solca of Bernstein said Richemont could face stronger competitiv­e pressure in its home category.

“Combining Bulgari and Tiffany could make LVMH an even stronger contender in jewelry, even if Richemont holds the top brand with Cartier, and probably the best high-end brand with Van Cleef & Arpels,” Solca wrote.

Grund also responded to questions about Richemont’s own merger and acquisitio­n plans, given the formation of Feng Mao, a venture between Yoox Net-a-porter

Group and Alibaba Group aimed at the domestic and traveling Chinese consumer; the Buccellati purchase, and a new JV with Alber Elbaz, AZfashion, unveiled last month. As reported, Feng Mao soft launched a Net-a-porter flagship on Tmall’s Luxury Pavilion at the end of September.

“We are open to M&A — that has always been the case — but we are not actively defining targets to acquire. We have built this business from scratch, and our goal has always been to achieve long-term value for our shareholde­rs,” said Grund.

“We spend money when we believe we see an opportunit­y, or when we want to transition to a different stage, as when we bought the online distributo­rs,” YNAP and Watchfinde­r.

One opportunit­y could be to snatch Tiffany & Co. given that LVMH’s $120-pershare, or $14.5 billion all-cash bid, has clearly failed to wow shareholde­rs.

Richemont, which has a market capitaliza­tion of 38.94 billion euros and a net cash position of 1.77 billion euros following the Buccellati acquisitio­n, certainly has the means.

It wouldn’t be the first time that Richemont battled with LVMH for hot luxury property: In 2000, Richemont edged out a cadre of high-profile bidders including LVMH, the Swatch Group and Gucci Group (which was eventually swallowed up by Kering) to acquire Jaeger-LeCoultre, IWC and A. Lange & Söhne in a $1.86 billion transactio­n.

Tiffany would also make for a neater fit at Richemont rather than playing alongside Bulgari in the more varied LVMH portfolio.

But analysts don’t think Richemont will take over Tiffany.

Royal Bank of Canada said in a report that Richemont management has “a lot of work ahead to make its digital strategy around YNAP work, and a more conservati­ve stance (than LVMH) regarding financial leverage, due to its business model.”

The bank believes it’s unlikely that Richemont, “at this stage, will be willing to add at least 14.5 billion euros debt to its balance sheet.”

HSBC wrote that it doesn’t see the risk of any counter-bid from a strategic investor or private equity, and believes that LVMH “is likely to seal the deal if the group manages to sweeten it slightly, especially as Tiffany shareholde­rs are likely to put pressure on the board to keep discussion­s open.”

Bernstein concurred, pointing out “there is no queue of white knights” gathering outside Tiffany’s door. “Richemont is likely not interested, as they have plenty of (better) brands of their own they could grow organicall­y,” the bank said.

Richemont is also in the midst of sorting out the online retailer acquisitio­ns it made last year, upgrading them and integratin­g them into the business — at a serious cost to the bottom line.

Sales at YNAP and Watchfinde­r & Co. expanded 32 percent to 1.18 billion euros, due in part to a full six months of trading in the period under review. (The prior year only included five months of sales).

Richemont said the 79 million euros increase in operating losses to 194 million euros in the division was due to higher promotion and shipping costs, and increased investment­s in technology and logistics migration, marketing and internatio­nalization. An additional noncash charge linked to the acquisitio­n of both companies last year also added to the losses.

During the call, Lambert said

Richemont has been working hard to upgrade and enhance YNAP’s and Watchfinde­r’s back-end tech operations and customer-facing services. In addition, the company has been re-platformin­g the men’s wear site Mr Porter.

“The business model of YNAP is proving to be a success,” said Lambert, referring in particular to the fact that the YNAP sites buy and hold stock, rather than act as a platform for brands.

He said Richemont has been investing in call centers and “quick and available” customer services in regions including the U.S., Europe, Hong Kong the Middle East and China.

“YNAP has been developing very successful­ly in Europe and in the U.S., but now we need to cover more countries and be more client-friendly, so we need localized services in places like the

Middle East and China. We will also be adding elements and investing in future adjustment­s to make the sites more clientfocu­sed and welcoming.”

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saw high-single-digit increases for Richemont. Here, the second floor of
the Beverly Hills store.
Van Cleef & Arpels jewelry saw high-single-digit increases for Richemont. Here, the second floor of the Beverly Hills store.

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