LONDON — The Asian flu has struck once again, and this time it’s Compagnie Financière Richemont that’s suffering a headache.
This story first appeared in the November 12, 2012 issue of WWD. Subscribe Today.
The parent of brands including Cartier, Dunhill and IWC reported a 52.4 percent bounce in first-half profits, but revealed that sales in September — and in the current quarter — were slowing. It also said the second-half figures could fall victim to exchange-rate fluctuations.
In the first half, Richemont’s net profits reached 1.08 billion euros, or $1.37 billion, due to strong operating results and favorable exchange rate movements.
That result outstripped Richemont’s own updated projections: In August, the luxury goods group had said it expected operating and net profits for the first half to rise between 20 and 40 percent, after notching sales growth of 24 percent in the four months ended in July and because of favorable exchange rates.
Sales in the five months to Aug. 31 climbed 23 percent, but momentum clearly began to slow by the end of the summer: For the full six months to Sept. 30, sales advanced 21.2 percent to 5.11 billion euros, or $6.49 billion.
On Friday, Richemont’s executive chairman and chief executive officer Johann Rupert was cautious in his outlook for the second half.
He said sales growth “moderated” in the month of October, growing 12 percent. He added that Richemont has also been seeing good growth in Europe, “supported by Asian tourism, which is compensating for slower domestic Asia Pacific sales.”
Richemont isn’t the only luxury goods company suffering from the Asian bug: It’s one of a host of luxury firms — including Burberry Group and Mulberry — to flag a slowdown in domestic consumption in Asia, and in Mainland China in particular.
“I would prefer to use the word moderation,” rather than slowdown, said Gary Saage, chief financial officer, during a conference call Friday.
He said the robust double-digit growth rates that Richemont has seen in the Asia-Pacific region over the past years were not sustainable.
In the first half of this year, the Asia-Pacific region grew 22 percent, compared with 23 percent growth in Europe and 16 percent growth in the U.S.
In the comparable half last year, Asia-Pacific was up 48 percent, and in the first half of 2010 it climbed 50 percent.
“Part of that moderation has been self-inflicted,” Saage added. “As we grow our retail, we’ve been a bit more cautious on the wholesale side. We don’t want our wholesale partners to be overstocked.”
With regard to watches in particular — which are sold through both wholesale and retail channels — Saage said the wholesale environment is “not as robust” as it was last year, although Richemont’s production capacity is still set to grow.
Citi Research said in an analysts’ note that excess inventory risks seem largely confined to Asia for now, “a major difference with previous downturns which were more global. We do not think the wholesale destocking cycle [for watches] will be as pronounced and prolonged as in 2001-03 and 2008-09,” the note said.
In the six months to Sept. 30, Richemont said it saw “remarkable results” from Cartier and Van Cleef & Arpels in particular, with the entire jewelry division growing 20 percent. The watch division also put on a strong show, with sales advancing 25 percent. Both divisions saw operating profits up in the double digits.
In the six months, retail sales grew 26 percent while wholesale sales advanced 17 percent.
Sales at Richemont’s Montblanc division climbed 10 percent, although operating profits were down 2 percent. Saage admitted that Montblanc “needed to do better,” and that the European business was going “at two speeds,” with sales flourishing at shopping destinations favored by tourists and “heavily affected” at shops that rely on locals.
Saage declined to give any guidance in the run-up to the Christmas season, beyond the fact that retail was healthy and doing better than wholesale. He added that in the medium to long-term: “We still see tremendous growth opportunities in emerging markets.”
Richemont also said Rupert will step down as ceo on March 31, but will remain the company’s executive chairman.
On April 1, Richard Lepeu, who is currently deputy ceo, and Bernard Fornas, who is head of Cartier, will become joint ceo’s. Fornas will oversee the brands, while Lepeu will be in charge of Richemont’s central functions.
Together with Saage, they will form a senior executive committee.
Rupert’s resignation was no shock, as his ceo role was always set to be a temporary one. He took over the post in April 2010 after Norbert Platt took early retirement due to ill health. At the time, Rupert said one of his reasons for taking over as chief was that he did not want an outsider coming into Richemont in what was a critical moment for the luxury goods industry. He said he planned to hold down the job at least until the economy improved.
During the call, Saage downplayed Rupert’s resignation. “The more things change the more they stay the same. Johann remains the executive chairman, and the company’s main shareholder. The big topics won’t change.”