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Bullish About Outlook, Richemont Doubles Net Via Tight Cost Controls

Rising sales and shrinking costs helped Compagnie Financiere Richemont double its profits to $605 million in its last fiscal year.

LONDON — Compagnie Financiere Richemont may have doubled its profits last year, but it’s keeping a tight hold on the purse strings.

Profits at Compagnie Financiere Richemont more than doubled to 496 million euros, or $624.7 million, from 238 million euros, or $279.8 million, in the fiscal year ended March 31, thanks to a mix of rising sales and shrinking costs.

And the momentum continues to build. Sales for April and May increased 15 percent at actual exchange rates, and the group’s watch businesses in particular have continued to show strong levels of growth, Richemont said in a statement Thursday.

Dollar figures have been converted from the euro at average exchange rate for the corresponding periods.

Richemont’s portfolio includes brands such as Cartier, Van Cleef & Arpels, Montblanc, Piaget, Baume & Mercier and Chloe.

“The year ahead will be a good one for the group,” said Johann Rupert, chairman of the Swiss-based luxury goods group in a telephone interview. “All things being equal, and barring any major economic disruptions, things will be going very well this year. We’re going to be carrying on driving sales, creativity and innovation — and containing costs.”

The statement added that operating profit rose 70.6 percent to 505 million euros, or $635.9 million, from 296 million euros, or $348 million, thanks to strong sales coupled with a 5 percent growth in operating expenses.

“We’ve been focusing on cost-cutting and cost-containment measures across the table,” said Rupert. “In the past, costs have gone up along with sales, but this time it didn’t happen. I think my colleagues have been very disciplined over the past year.”

The statement added there will be a 25 percent increase in the level of ordinary dividend to 0.5 euros, or 61 cents, per unit, as well as a special dividend of 0.5 euros, or 61 cents, per unit.

Jacques Franck Dossin, an equities analyst at Goldman Sachs in London, was full of praise for Richemont in his report Thursday.

“Second-half results indicate that Richemont, our top pick within the luxury goods sector, is delivering on all fronts: top line, restructuring and caring for shareholders,” he said.

“Second-half profits came out stronger than we expected. We note a positive surprise on cost-cutting and restructuring and losses in textile and other divisions were reduced. Fiscal year 2006 has started very strongly: April and May sales increased by 15 percent versus our estimate of 5 percent.”

As reported in April, sales rose 10.1 percent to 3.72 billion euros, or $4.54 billion, from 3.38 billion euros, or $4.12 billion, powered in particular by double-digit growth in the watch category and strong demand in the Asia-Pacific and European markets.

Meanwhile, in a separate statement, the company said Simon Critchell, who has been chief executive officer of Alfred Dunhill Ltd. for the past four years, would step down in March to pursue personal projects. Critchell has been with Richemont for more than 15 years, and was formerly president and chief executive of Richemont in North America.

He will be replaced by Christopher Colfer, a marketing executive at the group who has also been overseeing Richemont’s venture capital and development investments.

Rupert said in the telephone interview that another priority of his this year would be to hammer out a five- to 10-year strategy for Dunhill, which reduced its level of operating losses by 20 percent in the 2004 fiscal year. Dunhill remains one of the group’s largest brands, but has struggled over the last decade as it has tried to carve out a stronger design image in men’s wear and accessories. To that end, the company recently hired Savile Row designer Richard James to oversee its tailored men’s wear; Bill Amberg to do its accessories; Nick Ashley to do casual sportswear, and Tom Bolt do oversee Dunhill’s watch designs.

Although sales increased by 5 percent, with strong growth in Asia-Pacific and China, Rupert called the company’s situation unsatisfactory. “The focus for the year ahead will be to significantly improve operating efficiency within the maison, while continuing to expand the sales base, particularly in China,” he said.

Rupert added there were no plans to sell Dunhill — or any other Richemont brands. As reported last week, Richemont sold Hackett Ltd., the sporty British men’s wear brand, to Torreal S.C.R. SA, a Spanish investment company, for an undisclosed price.

“Hackett was a profitable company and a well-managed business, and we sold it at a small profit,” Rupert told WWD. “We sold it because we could not see how we could roll it out internationally,” he said, adding there were “no plans on the table right now” to dispose of any other companies in the Richemont stable.

Rupert said the sale of Hackett does not signal a change in strategy for Richemont, and he also denied he has his eye on Tiffany & Co., contrary to market rumors (see sidebar).

As for Lancel, the weakest company in the Richemont stable, the statement said it had a “testing” year. “It has suffered from the depressed local economy and the continued low level of tourism. Sales were broadly in line with the prior year.”

The company said it expected to see an improved performance at Lancel in the current financial year, although that will depend on levels of demand in France.

Sales of the specialist watch brands grew 13.5 percent to 885 million euros, or $1.11 billion, from 780 million euros, or $917.1 million, in the period, with almost all brands reporting double-digit growth.

“When we bought the three watch companies [IWC, Jaeger-Le Coultre and A. Lang & Sohne] five years ago, I think a lot of people wondered how we would manage them — and now I think they’d be pleasantly surprised,” said Rupert.

“We’ve kept the autonomy of the three maisons, but at the same time we’ve vertically integrated them, supported engineering and design innovations, and helped with distribution so they could increase their market penetration.”

The statement added that Richemont’s share of the net profit of British American Tobacco before goodwill amortization and exceptional items grew by 11 percent to 468 million euros, or $589.4 million, from 422 million euros, or $496.2 million. This was despite the group’s reduced interest in BAT during the year.