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Richemont Slumps as China Growth Slows

The Swiss luxury goods company reported an unexpected decline in first-half operating profit in part due to rising costs, fewer sales to retailers and a fall in growth in the domestic Chinese market.
Source: Richemont
  • Bloomberg

GENEVA, Switzerland — Richemont shares dropped the most in three years after the Swiss luxury-goods maker signalled that Chinese sales growth has slowed and warned that trade disputes could dent demand for Cartier necklaces and Piaget watches.

The stock fell as much as 6.7 percent in Zurich, erasing 2.6 billion CHF ($2.6 billion) of market value. Richemont reported an unexpected decline in first-half operating profit as costs rose and the company sold fewer timepieces to retailers to ease a glut in the market.

“Everybody’s concerned about trade wars,” Chief Financial Officer Burkhart Grund told reporters on a call.

The results may increase concern that luxury growth is ebbing as high net-worth individuals feel their wealth threatened in a jittery stock market. The news led to a drop of as much as 6 percent in shares of both Swatch Group AG, the largest maker of Swiss watches, and Kering SA, the owner of Ulysse Nardin and Girard-Perregaux.

Double-digit growth in the domestic Chinese market is over, and revenue is now rising at a high-single-digit percentage rate, which Grund described as more normal. The above-average growth phase that lasted more than a year was a reaction to a previous downturn, he said. The CFO also warned that a weakening yuan or the trade conflicts could further damp consumption.

Burberry’s View

The comments from Richemont, which often gives pessimistic outlooks, contrast with a brighter assessment from some rivals. Burberry Group Plc chief executive officer Marco Gobbetti said Thursday that the company hasn’t seen any drop-off recently in that market.

Grund said that even if China is coming off the boil, Richemont is happy with its new growth rate there.

“It’s quite stable and is expanding across different businesses and product segments,” he said on a call with analysts.

Sales growth to Chinese consumers traveling abroad exceeded 10 percent, though the recent clampdown on luxury imports into China has had some effect on that market, the CFO said. The segment is about three times as big as domestic sales in China because consumers there often prefer to buy luxury goods in lower-tax locations such as Hong Kong.

September sales in the Asia-Pacific region were held back by adverse currency shifts and typhoons that discouraged tourism, Grund also said, pointing to a high comparative figure in the same month last year. Richemont’s October sales growth returned to the 8 percent constant-currency pace of the first half, he said.

Wholesale watch revenue declined, offset by double-digit growth in Richemont’s own boutiques. The lingering weakness in sales of watches to third-party retailers shows that it’s taking time to turn that business line around. A decline in Switzerland’s watch exports in September recently rekindled concern about a potential slowdown in the industry.


Richemont blamed the drop in earnings on higher costs related to its €2.7 billion ($3.1 billion) buyout of online luxury retailer Yoox Net-a-Porter and sale of French handbag maker Lancel. After the purchase of YNAP, which just formed an alliance with Alibaba, online sales have reached 14 percent of Richemont’s total revenue.

Zuzanna Pusz, an analyst at Berenberg said it was a “very weak set of results showing how much the company overpaid for its recent acquisition of YNAP against deteriorating financial performance and the overall still weak trends in the hard luxury business.”

By Thomas Mulier, Corinne Gretler; editors: Eric Pfanner, Thomas Mulier, John Lauerman

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