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Why Richemont's sales fell 4%

Richemont, the luxury goods conglomerate controlled by the Rupert family, hiked its dividend for the year to March despite a crimping in operating margins from 18.6% to 16.6%.
Van Cleef & Arpels forms part of the Richemont brand stable. ©Ken Wolter via
Van Cleef & Arpels forms part of the Richemont brand stable. ©Ken Wolter via 123RF

Richemont's shares were under pressure immediately after the release of the results, slumping more than 6% in early trading. However, the share recovered slightly to close 5.09% down at R108.34.

On Friday Richemont chairman Johann Rupert stressed the company still had strong cash flows and a robust balance sheet. "I am confident we will deliver proper returns for all shareholders in the medium to the long term. We've been through these [difficult trading] phases before."

Sales dipped by 4% at actual and constant rates to €10.6bn, with operating profits dipping 14% to €1.76bn. But Richemont reported the net cash position improved 8% to €5.8bn.

In the divisional breakdown, Richemont reported a strong performance from its jewellery arm, with sales up 7% to €4.2bn. Rupert said jewellery now made up close to 40% of Richemont’s sales. Operating profit in the jewellery segment decreased 11% to €1.7bn, but showed a slight increase if the effects of stock buybacks were excluded.

The specialist watchmaking segment struggled, with sales down 15% to €4.4bn. The operating profit line showed a drop of more than 50% to €226m with the margin (including the cost of watch buybacks) more than halving to 7.8%.

Leather goods increased sales 11% to €779m, while writing instruments (mainly Montblanc pens) lifted sales 5% to €396m. Richemont’s clothing segment endured another shabby trading period with sales down 6% to €417m.

Richemont reported strong growth in mainland China, South Korea and in the UK. The group's executives described the past financial period as a challenging but productive year.

"Significant measures were taken, which weighed on short-term performance."

Speaking to analysts at an investor presentation, Rupert maintained the company – which owns luxury brands such as Cartier, Baume & Mercier, Jaeger-LeCoultre, Vacheron Constantin, Van Cleef & Arpels and Piaget – still owned great businesses.

He suggested it would make a big difference to Richemont's profitability if two or three underperforming Maisons could be turned around in the same manner the Van Cleef & Arpels Maison was resuscitated.

He singled out Dunhill as a persistent underperformer. "It is highly embarrassing for me ... at a personal level as everyone wants to know when it will be fixed," said Rupert.

He said a number of bold decisions had been taken at Dunhill and that similar actions should be expected at other underperforming Maisons.

Despite Richemont's strong balance sheet, Rupert discounted the possibility of making acquisitions, adding that the company had not pursued a potential deal with luxury watch brand Breitling.

He intimated it was not the time for Richemont to make acquisitions, reminding analysts that the company had recently retrenched 300 employees in Switzerland.

"Show me a great company that we can buy and run better [than the existing owners]. You must be bloody egotistical to pay a premium for a third-party business and think you can run it better," Rupert said.

Source: BDpro


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