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Richemont Weathers Hong Kong Protests as Jewellery Picks Up

Sales at the group rose 9 percent to €7.3 billion in the first half of the 2019-2020 fiscal year, with net profit broadly stable at €869 million.
Cartier | Source: Courtesy
  • Reuters

GENEVA, Switzerland —  Shares in luxury goods group Richemont fell over 5 percent on Friday after it said political protests in Hong Kong weighed on first half sales and reported higher than expected losses at recently-acquired online distributors.

The maker of Cartier jewellery had been benefiting from its fast-growing jewellery business, but a slight slowdown in the division, weak watch sales and operating losses at online distributors Yoox Net-a-Porter and Watchfinder worried investors.

Watch sales have been under pressure, particularly in Richemont's biggest market Hong Kong, where anti-government protests have scared off tourists and battered spending in the Chinese-ruled city.

"Hong Kong is very exposed to watches and jewellery, the market was down around 10 percent in the first quarter, then we had a severe drop in the second quarter," Chief Financial Officer Burkhart Grund told investors during a call on the results.

He said the softness in jewellery was only temporary as big-ticket high jewellery items would be invoiced in the second half.

Hong Kong retail sales of jewellery, watches, clocks and valuable gifts dropped 47.1 percent in August and 40.8 percent in September, data showed last week.

Shares in the world's second biggest luxury goods group, up almost 26 percent so far this year, were down 5.2 percent at 8.28am GMT, dragging down peer Swatch Group whose shares were 2.2 percent lower.

Richemont executives tried to reassure investors, saying that the adjustments of the group's watch wholesale network and its new digital initiatives, including the launch of a joint venture with Chinese online giant Alibaba, needed investment, but were showing promising results.

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Citi analyst Thomas Chauvet said he expected the group to emerge stronger from its current transformation, but was concerned about the persistent weakness in watches and losses at YNAP that were unlikely to be materially reduced in the next couple of years.

"Richemont is effectively loss-making on 30 percent of group revenues," he said, maintaining a "Neutral" rating on the stock.

The executives declined to comment on whether Richemont was interested in US jeweller Tiffany & Co., which LVMH offered to buy for $14.5 billion.

Grund said the group wanted to focus on developing its own jewellery brands, including recently acquired Italian jeweller Buccellati that will join Cartier and Van Cleef in Richemont's jewellery portfolio.

Sales rose 9 percent to €7.397 billion ($8.17 billion) in the first half of its 2019-2020 fiscal year, but the rise was only 2 percent on a comparable basis, excluding online distributors.

Richemont said it had seen good progress in mainland China, Korea, Japan, the United States and the United Kingdom, making up for a double-digit decline in Hong Kong, echoing recent comments from peers LVMH and Hermès.

Richemont said its net profit was broadly stable at €869 million, excluding a €1.4 billion one-off gain in the year-ago period.

By Silke Koltrowitz; editor: Michael Shields and Emelia Sithole-Matarise. 

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