Richemont was not immune from the weak demand for luxury goods in China in the quarter ending 30 September, posting group sales down 1 per cent at constant exchange rates to €4.8 billion.
“Obviously there is a slowdown in China that we are experiencing,” Richemont CEO Nicolas Bos told reporters on Friday. “We have no clue on how long it will last and whether we’ve reached the bottom or not.”
The Swiss luxury conglomerate’s earnings reflect the wider market, which is sinking deeper into a downturn. LVMH and Moncler Group each reported sales down 3 per cent for the quarter, while Kering slumped 16 per cent year-on-year. Hermès and Prada Group remain outliers, reporting sales up 11 per cent and 18 per cent, respectively.
By geography, Richemont sales in Asia-Pacific decreased by 18 per cent, though Japan was up 25 per cent. Sales in the Americas were up 12 per cent, Middle East and Africa up 16 per cent, and Europe was up 6 per cent.
Sales at Richemont’s jewellery maisons division, which includes Cartier and Van Cleef Arpels, rose 4 per cent at constant exchange rates during the second quarter, a touch below consensus expectations of 4.8 per cent. Sales at the specialty watchmakers division, including IWC Schaffhausen, Jaeger-LeCoultre and Vacheron Constantin, dropped 19 per cent, which was “materially worse than expected”, Bernstein luxury analyst Luca Solca wrote in a note (expectations were -8.5 per cent.)
Why is jewellery proving so resilient in these tough times as opposed to watches? Bos cited the room to grow given the unbranded nature of jewellery (around 25 per cent of the market is represented by international jewellery brands) and the wider diversity of price points. “In periods where sometimes the customer considers that purchasing power may be challenged, you will find in a jewellery offer that sometimes more affordable creations, which are beautiful, extremely desirable and still have long-term investment value, are more affordable than a high-end watch.”
Second-quarter sales at the conglomerate’s ‘other’ division, which includes fashion and accessory brands, were up 2 per cent. The company called out “the continued outperformance at Alaïa and Peter Millar”. Meanwhile, it was “a bit of a mixed performance” at Chloé, according to Bos. “Definitely the new creations are doing very well, but we still have a legacy that we have to deal with; and it’s very contrasted by countries, depending on the positioning that Chloé had in the past. If you think of Japan, the importance of [secondary line] See by Chloé [which was phased out last year] was quite high, so there’s a whole work there to reposition and explain where Chloé is going in the future and what [creative director] Chemena [Kamali] is bringing. So the business doesn’t necessarily reflect fully today the attractivity and the desirability of the last collection.”
Richemont said it was “pleased to have found such a good home” for Yoox Net-a-Porter (YNAP), whose sale to Mytheresa was announced in October. Grund added on the call: “One of the weaknesses we’ve had in the past was that it was a full-price [Net-a-Porter and Mr Porter] and an off-price [Yoox and The Outnet] business — curated and less curated — that were combined. With Mytheresa on the full-price curated luxury offer, that will be a very strong customer-serving business. Off-price should not be mixed up with that. We will equip YNAP with the necessary financial means so that the integration process will come to a successful conclusion.”
The Swiss conglomerate is prepared to adapt its watch manufacturing production to take account of slowing sales. “The main concern is to make sure that we don’t end up with another inventory [problem] in the market [referring to when Richemont bought back unsold watches to clean up the sector a few years ago, amid declining sales that followed a crackdown on corruption in China] that would be very detrimental in the long term,” Bos said. “So yes, we’ve taken measures already for some time adapting the production capacity and the deliveries. We’ve not taken specific measures, it’s more a kind of normal adaptation within our own capacities and with our partners.”
Bos is adamant on sustaining investments in China despite the context. “It wouldn’t make any sense to decrease visibility or activities in China,” he said, citing recent events around Cartier’s Trinity collection and a major exhibition on Cartier’s patrimony that just opened in Shanghai.
The election of Donald Trump was also top of mind during the call. Richemont management is confident about the strength of the US market. “We’ve been quite resilient in that volatile environment pre-election, which gives us a good basis for continued growth after the elections. But anything else at this stage, to be very frank, is just pure speculation,” said CFO Burkhart Grund. “We have in the past seen good business after elections because the uncertainty has been taken out through whatever result and whatever candidate has won. With that in mind, we expect our business for the time being to not be impacted either way.”
Bos added that historically, there is a question of timing in the US, as after the election comes the holiday season. “Usually it is a good period for the business regardless of the outcome of the election,” he said.
Asked about the possibility of tariffs being imposed by the US on luxury goods, Grund said: “We obviously look at that, we monitor it, we have scenarios in place, but nothing more than that can really be said at this stage.”
“What we are seeing in the world today is not unprecedented,” stated Rupert. “Looking ahead, while I remain cautious in this uncertain context, I am therefore confident in our ability to navigate the current as well as the future cycles and to deliver sustained value over the long term for all stakeholders.”
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