Richemont Misses Forecasts On Weak Asia Sales

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Richemont Misses Forecasts On Weak Asia Sales

Richemont reported Q3 earnings today. Richemont is one of the largest Swiss companies, and one of the largest luxury goods companies in the world. Unless someone actually finds the presidential inauguration address interesting, this is the main story today.  Richemont owns a prestigious portfolio of luxury brands (Cartier, Van Cleef & Arpels, Piaget, A.Lange & Sohne, Jaeger-Le-Coultre, Vacheron Constantin, Officine Panerai, IWC, Baume & Mercier, Montblanc, Montegrappa, Alfred Dunhill, Lancel, Chloe, Azzedine Alaia,Purdey).

Compagnie Financiere Richemont SA (VTX:CFR)’s Q3 sales (October to December) reached €2,862m , up 9% and 5% at CER (versus 7% expected). For the sole month of October, sales were up 7% at Compagnie Financiere Richemont SA (VTX:CFR). It appears that the pace of sales growth slowed gradually over the quarter despite a less demanding basis of comparison (Q3-11 sales jumped 24% at CER, with a 26%  increase in October and 21% in December). On a 24-month compound basis, sales growth slowed to 30% versus 52% recorded in H1. 9-month sales totalled €7,968m, up 17% and 9% at CER, after a 12% increase at CER recorded over H1.

Analysis for company:

All four business areas posted constant currency Q3 FY2013 growth below expectations. In the case of the specialist watchmakers and the Montblanc maison, however, the miss versus forecasts was marginal. The specialist watchmakers enjoyed the highest growth rate of the four business areas during the quarter.

By business area: unsurprisingly, H1 trends were maintained over Q3 with Jewellery and Retail (€1,554m, up 9% at CER after 15% in H1) driving growth while wholesale was weaker (€1,308m, up 2% at CER after 8% in H1) as watch retailers maintained a cautious approach. Jewellery Maisons’ sales were up 4% (to €1,477m, after 12% in H1) and Specialist
watchmakers’ sales rose 9% (to €784m after a 16% increase in H1), driven by sales in owned stores. Montblanc’s sales were broadly flat at €227m.

By region/network: growth was fuelled by Europe (€1,013m, up 9% at CER) — but included low to high single-digit price increases across the portfolio —and the Americas (€452m, up 13% at CER) while Japan’s growth slowed to 2%. The Asia-Pacific posted a marked slowdown, with flat sales (€1,116m) — wholesale declined but retail trends were positive
helped by store openings, after rising 6% in H1 and on a demanding comparison basis. The dichotomy between retail and wholesale trends (up respectively 12% and 6% at CER in the first nine months) strengthened as current trade inventory levels are under control.

Asia was the weakest region in Q3 (flattish at constant currencies vs. 9% for Europe, 13% for the US and 2% for Japan). Note that the timing of the Chinese new year (10 Feb vs. 23 Jan last year) probably magnified the slow-down in Q3 but could also support revenue growth in Q4. Secondly, it is too early for the improvement in HK watches & Jewellery retail sales (13% in November) to translate into higher wholesale revenues at this stage but if this trend is confirmed, it could gradually support sell-in the coming months.

Net financial cash reached almost €3bn at 31 December 2012 versus €3.2bn at end-September.  The increase in net cash reflected a EUR100m increase from its 30 September 2012 balance to EUR3.0bn. Analysts expected a EUR600m increase to EUR3.5m, so cash conversion appears to be a lot weaker than many had forecasted.

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According to Swiss daily Le Temps, in China, Richemont and Chinese jewellery chain Chow Tai Fook will create a joint venture to distribute Baume & Mercier in mainland China, an underpenetrated market for this recently repositioned and relaunched mid-range brand within Richemont’s portfolio.

Disclosure: No position

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