LONDON — Investors shrugged off Compagnie Financière Richemont’s unscheduled announcement Wednesday that full-year net profit will plunge 36 percent, due chiefly to non-cash currency translation effects linked to its 5.4 billion euro, or $5.79 billion, pile of cash.
This story first appeared in the April 23, 2015 issue of WWD. Subscribe Today.
In midafternoon trading, the stock was down 0.1 percent to 83 Swiss francs, or $86.74, in a day that saw luxury shares including Kering, Burberry, Mulberry and Salvatore Ferragamo book more significant losses.
Parent of brands including Cartier, Dunhill and Van Cleef & Arpels, Richemont said in a brief statement that net earnings in the year ended March 31 would be dented “significantly” by non-cash, mark-to-market losses on financial instruments, which include monetary items and derivatives.
The losses are related to euro-linked investments, which are required to be converted into Swiss francs, triggering losses on paper. Richemont clarified that the non-cash losses had no material impact on the group’s net cash position of 5.4 billion euros.
Although Richemont attributed the 36 percent decline to the losses on paper, some analysts said the luxury goods group’s profit story runs deeper.
“The group is warning on its full-year results,” said Luca Solca in a flash statement following Richemont’s announcement. Solca pointed to Richemont’s anticipated 10 percent uptick in full-year operating profit, and concluded that it’s “4-5 percent lower than current expectations.”
Vontobel Research said in a separate statement that Richemont’s expected underlying reported sales and operating profit are “fully in line” with its own estimates.
As reported in November, Richemont got off to a rocky start in the first half, with profits falling 23.5 percent to 907 million euros, or $1.22 billion, in the six months to Sept. 30 due to volatile trading conditions worldwide and to charges linked to the firm’s hedging program.
First-half sales were up 2 percent at actual exchange rates and 4 percent at constant ones.
In Wednesday’s statement, Richemont clarified the impact of last month’s Net-a-porter spin-off on its balance sheet, and re-presented its results for the year.
Net-a-porter will be classified as a “discontinued operation” in the group’s consolidated statement for the years ended March 31, 2015 and 2014.
Stripping out the impact of Net-a-porter’s results, Richemont’s sales for the 2014-15 fiscal year ended March 31 are set to increase 4 percent on a reported basis, and 1 percent on a constant currency one.
Operating profit will increase 10 percent, including a previously disclosed gain on the sale of a retail space on Fifth Avenue in Manhattan.
Richemont said the re-presented results have “no material impact” on the group’s operating profit or net profit for the 2014 and 2015 financial years or on the net cash position.
Richemont is to announce full results for the year ended March 31 on May 22.