Richemont misses profit forecast

Zurich — Cartier owner Richemont missed first half profit forecasts and remained cautious about a recovery in China on Friday, sparking a sell-off in European luxury stocks.

Richemont’s shares were down 3.7% in early trading, while rivals LVMH and Swatch were 2% and 4% lower respectively after the update from the owner of Swiss watchmakers including IWC, Jaeger-LeCoultre and Piaget.

Investors were disappointed by lower-than-expected operating profit across Richemont’s divisions, particularly in its specialist watchmakers unit, which continued to struggle.

“Ebit (earnings before interest and tax) was lower than expected in all divisions most notably in Specialist Watchmakers,” said Bank Vontobel analyst Jean-Philippe Bertschy, though he noted Richemont had been hit by one-offs and negative foreign exchange effects.

Richemont’s operating profit for the six months to the end of September fell 17% to €2.21bn, missing forecasts of €2.45bn in a consensus of analysts estimates complied by Visible Alpha.

It also reported a 1% dip in sales during the period, to €10.08bn, missing forecasts for €10.21bn as Richemont was hit by a continued downturn in Asia-Pacific, its biggest region which generates a third of its revenues.

Sales in the region fell by 18% at constant exchange rates, though this was partly offset by increases in the Americas, Japan and the Middle East.

Richemont CEO Nicolas Bos, who took charge earlier this year, said China remained a difficult market.

“There are multiple factors ... that are linked to the Chinese economy as a whole,” said Bos said, adding: “There is definitely a confidence factor, which is probably the most important for our customer base”.

Bos told reporters that confidence in China was low and he did not know how long the downturn would last.

“We have, of course, no clue on how long it will last and whether we reach the bottom or not,” he said.

Like other luxury companies, Richemont has been battling weaker demand in China caused by the economic slowdown in the world’s second-biggest economy, hit by a downturn in the property market and high youth unemployment.

Its luxury rivals have reported mixed fortunes, with LVMH missing third quarter sales forecasts, saying consumer confidence in China had fallen to pandemic-era lows.

Elsewhere, Richemont said it expected a short-term pick up in the US after the lifting of pre-election uncertainty, and was monitoring how possible higher tariffs floated by president-elect Donald Trump could affect the business.

Richemont's first half net profit fell to €458m from €1.51bn as it took a €1.27bn non-cash write down after agreeing to sell its Yoox Net-A-Porter online fashion and accessories business.

Reuters