Happy Days Return: Richemont’s Rupert Gleeful as Net Soars

Swiss luxury group Richemont is back on track: Profits are up, debt is down, there’s $236 million in the bank and ceo Rupert is having fun again.

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LONDON — Johann Rupert is having fun again.

The executive chairman of Compagnie Financière Richemont SA, like other luxury titans, is kicking up his heels as signs continue that consumers’ appetites for fashion and luxury have returned after last year’s worries over SARS, terrorism and the economy. The Swiss-based Richemont is back on track: Profits are up, debt is down — and there’s $236 million (200 million euros) in the bank.

This story first appeared in the June 11, 2004 issue of WWD.  Subscribe Today.

“The business is back to being fun,” Rupert, who is also Richemont’s chief shareholder, said in a telephone interview Thursday. “We’ve eliminated our debt, and that will help us support our brands. I hope we’ve turned the corner.”

Net profit for the fiscal year ended March 31 soared 55.6 percent to 238 million euros, or $280.8 million, from 153 million euros, or $180.5 million, a year earlier, thanks to an 11 percent dip in net operating expenses linked to the restructuring of the Dunhill and Lancel subsidiaries and tighter cost control measures, Richemont said in a statement Thursday.

As reported, sales in the 2003 fiscal year fell 8 percent to 3.38 billion euros, or $3.99 billion, from 3.65 billion euros, or $4.31 billion, due in large part to the impact of the SARS crisis last spring. In constant currency terms, sales were flat against last year.

Operating profit rose 14 percent to 296 million euros, or $349.3 million, from 259 million euros, or $305.6 million. Currency conversions were made at the average exchange rate during the year of $1.18 per euro.

In addition, cash flow was boosted both by the luxury goods businesses and by Richemont’s shares in British American Tobacco, the statement said. (Just last week, Richemont received proceeds from the disposal of BAT shares, and pulled in an additional cash pile of 828 million euros, or $977 million.)

Indeed, Richemont — parent of brands including Cartier, Montblanc, Chloé, IWC, Van Cleef & Arpels and Piaget — is so confident about the future that it has proposed the yearly dividend be increased by 25 percent to 40 euro cents, or 47 cents, per unit.

“Given the potential of the underlying businesses, and the strength of Richemont’s balance sheet, my colleagues and I look to the future with confidence,” Rupert said in the statement.

That good news has been hard won: Last year at this time, Rupert apologized to shareholders for the company’s falling sales, laid-back approach to product development, high costs and overheads.

But while there’s still a way to go, Rupert is now confident. “The feel-good factor is back, there’s a lot of product innovation, and the sell-throughs have been very good so far this year.”

Sales at Richemont have been on the upswing since the fourth quarter, when trading increased 10 percent in constant currency terms thanks to vigorous demand in the U.S., where consumers continue to spend and the economy is vigorous, and in Asia.

Sales in April and May increased 23 percent and 21 percent, respectively, albeit from a low base the previous year when the SARS crisis was in full swing.

Rupert said Cartier’s Ladies Roadster and Santos 100 watches were doing very well, in addition to the IWC and Panerai watch lines.

The Chloé brand is also performing beautifully under designer Phoebe Philo, according to the chairman. “Maybe it’s time to put our foot on the accelerator there; I’m looking forward to discussing future plans with the Chloé management,” said Rupert, who in the past has been more cautious about Chloé’s expansion and, at one point several years ago, indicated the company was a noncore asset compared with Richemont’s jewelry and watch brands.

“Dunhill has reached the bottom, and now it’s time to come up,” said Rupert, referring to one of the brands that Richemont was forced to restructure over the past two years. “And I’d like to point out that the leading Dunhill boutique is the one on Fifth Avenue” in New York.

Rupert said he’s learned some hard lessons during the past 24 months.

“Two years ago, I was not exactly amused by the position that Richemont was in. We had negative cash flow and debt of $1.65 billion (1.4 billion euros). During the good times, that wasn’t so noticeable, but the downturn in the world economy exacerbated the situation.

“I learned that I should act on my instincts,” he added. “Two years ago, I was warning everyone publicly that the good times were not going to last — and I should have taken my own advice. Even my own friends asked me why I did not act earlier. Yes, I should have addressed the cost problems and other issues at Richemont earlier on.”

Rupert added that challenges going forward will be mostly external, such as currency fluctuations and “anything that will disturb the feel-good factor.” Indeed, like most other luxury goods houses that produce their goods in Europe and sell them worldwide, Richemont is suffering from the weak dollar and yen.

Asked if he had any plans to replace Alain Dominique Perrin, who stepped down as Richemont’s chief executive at the end of last year, Rupert said: “No. I would not attempt it. He’s irreplaceable. I’m basically doing his job — and doing it a little differently. But he is still here consulting with me, and we still have one-third of his time.”

As reported, Perrin, dubbed “Mr. Cartier” for his work building the French jewelry brand, continues in an executive role at Richemont and sits on the board of the parent company.

In a breakdown of its various operations, Richemont said sales in its key jewelry division, which includes Cartier and Van Cleef & Arpels, dropped 9 percent to 1.81 billion euros, or $2.14 billion, from 1.99 billion euros, or $2.35 billion, and 1 percent in constant currency terms.

The group’s watch division saw sales shrink 4 percent to 780 million euros, or $920.4 million, from 808 million euros, or $953.4 million, although they rose 4 percent in constant currency terms.

At Dunhill and Lancel, the two loss-making leather goods and accessories companies, sales dropped 15 percent to 258 million euros, or $304.4 million, from 302 million euros, or $356.4 million. Sales decreased by 3 percent at constant exchange rates.

Operating losses at Dunhill and Lancel shrank to 42 million euros, or $49.6 million, from 170 million euros, or $200.6 million, a year earlier as a result of a series of store closures and a tighter focus on the brands’ key markets.

As for Richemont’s writing instrument manufacturers Montblanc and Montegrappa, sales fell 1 percent to 389 million euros, or $459 million, from 394 million euros, or $464.9 million. At constant currency, sales grew 6 percent, thanks in large part to the expansion of Montblanc’s retail network and diversification strategy.

The statement said Chloé and Hackett are “growing rapidly.” The two companies are grouped in the “other businesses” division, where sales fell 8 percent to 140 million euros, or $165.2 million, from 153 million euros, or $180.5 million. On the bright side, operational losses in that division shrank to 9 million euros, or $10.6 million, from 25 million euros, or $29.5 million.

By region, the Americas and Asia generated the most growth. In the Americas, sales fell 5 percent to 655 million euros, or $772.9 million, from 693 million euros, or $817.7 million. However, they surged 11 percent in constant currency terms.

In the Asia-Pacific region, sales fell 8 percent to 637 million euros, or $751.7 million, from 695 million euros, or $820.1 million, but rose 7 percent in constant currency terms.

Sales in Europe, Richemont’s biggest market, which generates 43 percent of sales, dropped 6 percent to 1.46 billion euros, or $1.72 billion, from 1.56 billion euros, or $1.84 billion, and dropped 5 percent at constant exchange rates. However, sales began to pick up in the fourth quarter — following the overall trend — and rose 8 percent at constant exchange rates.

In Japan, Richemont’s second-largest market by volume, sales fell 11 percent to 625 million euros, or $737.5 million, from 705 million euros, or $831.9 million, and fell by 3 percent at constant currency.

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