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Richemont Ramps Up: Chloe Seen as a Key To Group’s Expansion

Richemont has big plans for Chloe - and no interest in acquisitions at any price.

LONDON — Richemont has big plans for Chloé — and no interest in acquisitions at any price.

Norbert Platt, chief executive officer of Compagnie Financière Richemont SA, said Thursday the luxury goods group sees potential to expand Chloé into watches and jewelry. While Platt gave no time frame for the move, the brand extension follows the addition of categories such as leather goods, sunglasses, the See by Chloé secondary line and freestanding Chloé stores.

However, during a conference call to discuss the group’s year-end results, Platt was also crystal clear regarding Richemont’s acquisition intentions, saying the group would not compete with shopaholic equity funds for fashion and luxury brands. Asked about the recent sale of Valentino Fashion Group to the equity fund Permira, Platt said: “The Valentino acquisition was extremely expensive, and the question is whether Permira can add enough value to Valentino in order to make their money back. Faced with an acquisition, we ask ourselves if the price is in proportion to the added value of the business.”

During the call, Richard Lepeu, group finance director of Richemont, added that, instead of paying premium rates for an acquisition, Richemont is focused on growing organically. He said the company either will start up businesses like it has recently done with Polo Ralph Lauren, creating a 50-50 joint venture for luxury watches, or build out existing businesses such as Chloé.

The comments were made as Richemont reported a 21 percent increase in net profits to 1.3 billion euros, or $1.67 billion, in the year ended March 31, from 1.1 billion euros, or $1.34 billion, a year earlier. The strong growth in profits came as a result of vigorous sales of jewelry and watches.

Overall sales rose 12 percent to 4.83 billion euros, or $6.19 billion, from 4.31 billion euros, or $5.25 billion.

Stripping out annual gains from British American Tobacco, where Richemont has a 19 percent stake, profit growth at the company would have been 29 percent to 789 million euros, or $1.01 billion, from 610 million euros, or $742.9 million. Currency conversions were made at average exchange rates for the respective periods.

In a statement Thursday, executive chairman Johann Rupert called the year’s performance “excellent,” adding that the global market for luxury goods is expanding and the outlook for the year is positive.

This story first appeared in the May 25, 2007 issue of WWD.  Subscribe Today.

“We currently expect to see good, underlying growth in sales in most key markets over the coming year,” Rupert said.

“Our expectations are supported by the positive trends seen during the latter half of the past year and the continued good performance in April 2007 when sales increased by 10 percent at actual exchange rates,” he added.

In the 2006-07 fiscal year, Chloé was a star performer, with sales rising more than 50 percent due to an expanded retail network.

The brand last year tapped Paulo Melim Andersson as its chief designer with the task of maintaining the sales momentum that was built up by previous head designer Phoebe Philo. Once seen as a secondary business within Richemont, Chloé’s sales have quadrupled over the last two years and the brand is now considered one of the stars of the group. Ralph Toledano, Chloé’s chairman and ceo, told WWD in March that Chloé was entering its next phase of development, including unveiling a new fragrance in the second half of the year and opening more stores, especially in the Asia-Pacific region. Chloé plans to open 19 stores or shop-in-shops this year, as well as 25 franchised stores, including eight in China, Toledano said.

A Richemont spokesman, speaking about the expansion plans, said Thursday: “There is so much brand recognition of Chloé in the market right now that jewelry and watches would be natural extensions for us. We’re not talking about high-end, 25,000 euro [or $34,000] watches, though, and there is still a question about the timing.”

In addition to Chloé, the Switzerland-based Richemont is the parent of brands including Cartier, Van Cleef & Arpels, IWC and Dunhill. It also holds stakes in companies including Net-a-porter and the new company Atelier Fund Management, which invests in small fashion brands.

In the period, Dunhill and Lancel, which are both undergoing restructuring, turned a corner.

In final months of the fiscal year, Lancel began trading profitably and posted double-digit sales gains, while Dunhill’s operating losses declined to 8 million euros, or $10.2 million, from 30 million euros, or $36.5 million, thanks in part to a nonrecurring net gain during the period.

“Both companies reduced their losses and Lancel reached a very important milestone this year, reaching breakeven,” said Platt. “Dunhill has made a significant improvement, and we are optimistic about its potential.”

Overall sales grew fastest in the Asia-Pacific region, with China driving growth.

Cartier, which generates the bulk of Richemont’s sales, saw double-digit sales increases in all regions except Japan, where there was moderate growth. Van Cleef & Arpels also posted good growth, the statement said.

Watch brands Panerai and A. Lange & Söhne helped drive growth in the watch division, which was 21 percent in the period.

Antoine Belge, an equities analyst at HSBC, said the bank still considers Richemont’s brand portfolio to be the strongest in the industry, and that the April sales gain was very strong.

He called the 2006-07 results “excellent,” but fears the weak dollar and yen might hurt the company in the future. “There is plenty of cash everywhere, people are splashing out on spending. It’s just that we have become a bit cautious in our outlook,” he said.