Compagnie Financiere Richemont SA outstripped analysts’ expectations with robust first-half sales and profits, but the double-digit growth is expected to slow over the next six months as currency fluctuations and tough comparisons take their toll.
This story first appeared in the November 15, 2010 issue of WWD. Subscribe Today.
Profits at the parent of brands including Cartier, Montblanc, Dunhill, and Chloé rose 87.2 percent to 644 million euros, or $824.3 million, from 344 million euros, or $440.3 million, in the six months to Sept. 30, boosted by a double-digit rise in sales and a one-off gain from the acquisition of Net-a-porter.com.
The company said sales rose 37 percent to 3.26 billion euros, or $4.17 billion, from 2.38 billion euros, or $3.05 billion, on the back of double-digit increases in all product categories and geographical regions.
Richemont said the second half is off to a solid start, with October sales 36 percent higher than last year. All figures have been converted at average exchange rates for the six-month period.
“In the first half, exchange rates were in our favor; there were currency tailwinds. We also had easy comparisons with the corresponding period last year,” said Gary Saage, chief financial officer, during a conference call Friday.
“I don’t know where the currencies are going to go over the next six months, but they will turn into headwinds for us. And keep in mind that in November last year, we started to grow in the double-digits, so comparisons will be more challenging,” he added.
Alan Grieve, director of corporate affairs, said the company will suffer from the dollar-euro exchange, as much of Richemont’s sales are done in dollars but reported in euros.
During the call, Saage declined to comment on reports last week that Richemont had taken a minority stake in Hermès, in the wake of an announcement last month that LVMH Moët Hennessy Louis Vuitton holds a 17 percent stake in the firm.
Despite the anticipated slowdown in growth, Johann Rupert, executive chairman and chief executive officer, said Friday the luxury rebound was for real. “The good performance achieved by Richemont in the first half…has been driven by a marked improvement in all business areas and across all geographies compared to the depressed levels seen last year,” he said.
The sales gains in the first half were made despite price increases at the Richemont brands throughout the summer. Saage, however, declined to clarify by how much Richemont had raised its prices and which brands were most affected.
Dennis Weber, analyst at Evolution Securities, said in a report that the first-half figures beat his and the markets’ expectations. “Richemont once again underlined its strong market position. Despite tougher comps in the second half, an unfavorable foreign exchange impact on cost of sales and brand repositioning costs, earnings momentum remains positive,” he wrote.
Saage said Richemont was plugging ahead with store openings, and by the end of the year planned to have 45 to 50 new doors. He said 40 to 50 stores will open during the following fiscal year. In China, Richemont is moving toward having “all-owned retail stores in the tier one cities,” and that it planned to roll back franchises in those areas, Saage said.
The bulk of Richemont’s investment was earmarked for the Asia-Pacific region. That region posted growth of 50 percent at actual exchange rates in the first half and was neck-in-neck with the Americas, which showed growth of 51 percent. Growth in Japan was 23 percent, while the slowest growth area was Europe, with 27 percent.
By product category, jewelry sales rose 32 percent; watches rose by 38 percent; writing instruments increased by 28 percent, and the other businesses division, which includes Net-a-porter, rose by 65 percent.
Richemont’s fashion and accessories brands, which include Chloé, Dunhill, and Lancel, saw double-digit sales growth and profits of 7 million euros, or $9 million, compared with losses of 9 million euros, or $11.52 million, in the corresponding period last year.