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Richemont, Hermès Slump as Gloom Deepens in Luxury Industry

Richemont said first-half operating profit will probably decline about 45 percent, while Hermès abandoned its annual sales growth target, adding to the gloom spreading across the luxury industry.
Hermès store | Source: Shutterstock
By
  • Bloomberg

GENEVA, SwitzerlandRichemont, the maker of Cartier jewellery, said first-half operating profit will probably decline about 45 percent, while Hermès International SCA abandoned its annual sales growth target, adding to the gloom spreading across the luxury-goods industry.

Revenue slid 13 percent excluding currency shifts in the five months through August, Geneva-based Richemont said Wednesday, missing the median analyst estimate for an 11 percent decline. Hermès said it's no longer forecasting annual revenue growth of about 8 percent excluding currency shifts, and instead has "an ambitious goal" for growth.

Hermès giving up on the forecast is a "negative read-across for the whole soft luxury industry, fueling concerns about the sector's long-term growth potential," Zuzanna Pusz, an analyst at Berenberg, said in a note. Hermès shares fell as much as 5.7 percent in Paris, even as first-half profit beat estimates. Richemont dropped as much as 4.3 percent in Zurich.

The luxury industry is grappling with another year of waning demand as China’s campaign against extravagant spending is aggravated by a drop in tourism after terrorist attacks in France and Belgium. Swatch Group AG reported a 54 percent decline in first-half profit in July.

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"We have to be frank and transparent, we see first-half results that were better than we expected, but there is a lot of uncertainty around the world and the rigidity of written guidance means we are less flexible," Hermès chief executive officer Axel Dumas said on a conference call. The company anticipates earnings will be lower in the second half than the first, he said.

Richemont said the decline in operating profit for the six months through September includes one-time restructuring charges of about €65 million ($73 million). Analysts had expected a 41 percent drop, according to estimates compiled on Bloomberg. The Geneva-based maker of Vacheron Constantin timepieces also reported a 13 percent slide in revenue in the five months through August, excluding currency shifts, missing analysts' estimates.

Hermès reported first-half earnings before interest and tax rose to €826.8 million. Analysts predicted €818.5 million, according to the median of 12 estimates compiled by Bloomberg.

By Corinne Gretler and Thomas Buckley; Editors: Matthew Boyle and Thomas Mulier.

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