By Samantha Conti
with contributions from Joelle Diderich
 on July 18, 2019
Inside the new Cartier London flagship on New Bond Street

LONDON — Compagnie Financière Richemont’s first-quarter revenue fell short of analysts’ estimates, with organic growth dented by a decline in the watch division, continuing tight inventory management and the extradition protests in Hong Kong.

The news didn’t rattle analysts or markets, though, with Richemont’s share price closing up 1.1 percent at 86.22 Swiss francs on Thursday.

Revenue in the three months to June 30 climbed 12 percent to 3.74 billion euros at reported exchange rates, while at constant rates, they climbed 9 percent.

Stripping out the impact of Richemont’s newly acquired online retailers, Yoox Net-a-porter Group and Watchfinder & Co., first-quarter growth was 6 percent at actual rates. At constant exchange, growth was 3 percent, compared with analysts’ projections of 5 percent.

Luca Solca of Bernstein wrote that while the luxury giant may have missed banks’ forecasts, it was “largely for the right reasons. The wholesale channel continues to be a drag, as Richemont focuses on gaining a tighter grip on distribution and higher price discipline. Hong Kong protests also weighed on the quarterly update.”

In its equity note, Vontobel accentuated the growth in Richemont’s jewelry division and said the strong double-digit uptick at YNAP and Watchfinder was a “positive point.” The bank said it is expecting full-year organic growth of 5 percent, and kept its “buy” rating on the stock.

This was the first time Richemont issued a first-quarter trading update in July: The parent of brands including Cartier, Van Cleef & Arpels, IWC and Dunhill, usually releases a trading statement for the first five months at its annual general meeting in mid-September.

Revenue at Richemont’s jewelry maisons rose 10 percent at actual rates, and 7 percent at constant ones, while the specialist watch business edged up 1 percent, but fell 2 percent without the boost from currency conversions.

The company flagged “ongoing, cautious watch inventory management and distribution optimization initiatives,” and said those factors continued to have a negative impact on the wholesale channel.

Richemont has been keeping a close eye on its watch business, which it has been resizing over the years to adjust to changing consumption patterns in different markets.

Overall Swiss watch exports fell by 10.7 percent in June, partly due to a calendar effect, but the sector as a whole logged a better-than-expected performance in the first half, the Federation of the Swiss Watch Industry said Thursday.

Foreign sales of Swiss timepieces totaled 10.7 billion Swiss francs in the first six months of the year, up 1.4 percent. That increase was due mainly to stronger sales of expensive watches, as volumes tumbled on the accessible end of the market.

“While part of the increase can be attributed to particular circumstances, such as anticipating the effects of Brexit and an exhibition of rare items in China, overall performance remained positive and points to an encouraging trend in the sector for the year as a whole,” the federation said in a statement.

It forecast that despite the challenges facing the watchmaking sector as a results of competition, rapidly changing consumer behavior, and external events such as the protests in Hong Kong, watch exports should continue to grow in 2019 and 2020.

Richemont’s new online retail division, comprised of Yoox Net-a-porter Group and Watchfinder & Co., climbed 61 percent, and 56 percent at constant rates. The growth of the division was high in the first quarter because sales in the corresponding period last year only included two months of revenue for YNAP and one month of sales for Watchfinder.

At actual exchange rates and including the online retailers, sales in Europe and Asia-Pacific were both up 12 percent, while Japan rose 13 percent and the Americas 16 percent. The Middle East and Africa fell 2 percent.

Richemont said the increase in Asia-Pacific reflected double-digit sales growth in its key markets, with the exception of Hong Kong. Growth was led by mainland China, where strong sales were supported by lower VAT and custom duty rates. Sales in Hong Kong retreated, impacted by the relative strength of the Hong Kong dollar and the recent street protests.

Richemont also commented in detail on its performance excluding the positive impact of YNAP and Watchfinder.

The luxury group said sales in Europe at constant rates were 1 percent lower compared to the prior-year period as good momentum in jewelry “was more than offset by a slower performance in the other business areas.”

In Asia-Pacific, a 9 percent increase in sales reflected double-digit growth in key markets, with the exception of Hong Kong, while sales in the Americas rose by 1 percent as growth in the jewelry and other business divisions outweighed lower sales at the specialist watchmakers.

In Japan, the 6 percent sales uptick was driven by “good domestic and tourist spending,” and the full-year impact of recently opened, directly operated boutiques.

Richemont said “unfavorable currency movements and the severance of selected wholesale relationships” weighed on sales in the Middle East and Africa, which decreased by 12 percent over the period.

Richemont’s retail channel registered a 6 percent increase in sales, driven by the jewelry houses and, to a lesser extent, the specialist watchmakers.

Watch inventory management and distribution optimization continued to negatively impact the wholesale channel, which posted a 2 percent decrease in sales. The decrease was also due to the phasing of product launches, with most of them due in the second quarter of the current financial year.

The group’s other businesses division saw sales fall 3 percent at constant rates, while they were flat at actual exchange rates. The division was impacted by the disposal of Lancel last year.

Excluding the impact of Lancel, sales decreased by 1 percent. Richemont said the “strong performance of Peter Millar contrasted with that of the other maisons.” Other brands in the division include Dunhill, Alaïa, Chloé, Montblanc, Purdey and Serapian.

Richemont’s net cash position as of June 30 amounted to 2.4 billion euros.