LONDON — Compagnie Financière Richemont has warned that first-half profit will fall some 45 percent in the first half, due to the slowdown in hard luxury sales, and fine watches in particular.
The parent of Cartier, IWC and Dunhill issued the warning in a trading update Wednesday, where it said operating profit for the six months ending Sept. 30 is set to be about 45 percent below that of the corresponding period last year.
The drop in operating profit reflects a 14 percent decline in sales in the first five months as well as one-off restructuring charges of approximately 65 million euros, or $73 million, and the additional effect of the watch buy-backs.
That compares with sales growth of 16 percent in the corresponding five months of 2015. Richemont had been bracing for a difficult 2016-17, due to the continued decline in sales of high-end watches, and a waning appetite for hard luxury due to geopolitical troubles.
Richemont shares were down 2.9 percent to 58.05 Swiss francs, or $59.65, in mid-morning trading on Wednesday.
As reported earlier this year, Richemont has been buying back some of its high-end watches, mostly from third-party retailers in Hong Kong and Macau, harvesting the precious gems, and melting down the metal.
The company said in its five-month update that difficult trading conditions are likely to continue.
“Consequently, we anticipate profit for the period for the six months ending Sept. 30 will also be impacted at a broadly similar level to the decline in operating profit,” it said.
Six-month profits will also be impacted by exchange rate movements, interest, taxation and discontinued operations.
Sales in the five months from April to August were down 13 percent at constant rates, and 14 percent at actual ones. Excluding the exceptional watch returns from third-party retail partners, constant currency sales decreased by 10 percent for the period, Richemont said.
“We are of the view that the current negative environment as a whole is unlikely to reverse in the short-term,” Richemont said, while adding it was confident in the long-term prospects for luxury goods globally, and in particular for watches and jewelry.
In the five months, sales in all geographic regions were down, with those in Europe, Japan and the Middle East falling in the double digits.
Richemont said the U.K. has shown growth since the weakening of sterling following the European Union referendum. Sales were down in France, due to a significantly lower level of tourist activity, while the Americas saw positive momentum in both jewelry and accessories, but an overall decline in sales due to a weaker performance in watches.
The company added that growth in mainland China and South Korea was more than offset by the continuing weakness of the Hong Kong and Macau markets, while Japan reported significantly lower sales against very high comparative figures. The strength of the yen also depressed tourist spending in the country, with a noticeable impact on sales, Richemont said.