Luxury Stays Strong Despite Volatile Market, Richemont Says

LONDON – Are the storm clouds more luxurious?

It’s hard to tell, said the school principal at Richemont Financial Company. There is still volatility in China, growth is slowing in the go-go US market, and COVID-19 continues to affect consumer behavior.

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However, demand for high-end watches, jewelry and accessories remains strong, he said Richemontwhich posted a strong set of results for the fiscal first half ended September 30.

In actual exchange rate, Richemont saw a 24 percent increase in sales to 9.68 billion euros, and a 40 percent spike in profit from continuing operations to 2.11 billion euros.

On Friday, Richemont shares surged more than 10 percent to close at 118.10 Swiss francs.

The parent brand is included Cartier, IWC and Chloé reported a loss of 766 million euros in six months due to a non-cash decrease in assets related to it. proposed the sale of Yoox Net-a-portir Group to Farfetch and Alabbar.

The deal, revealed in August, will see Farfetch eventually take control of YNAP, while Richemont and Farfetch will work together on e-commerce and other digital strategies. As part of the deal, Richemont will also take a minority stake in Farfetch.

While Richemont’s manager spoke at length about the volatility and lack of visibility in the current market, one thing is certain: COVID-19 continues to reshape consumption patterns in the world for the better, and for the worse.

In the US, pent-up demand from the lockdown is dampening sales, while Chinese spending remains hobbled by COVID-19 restrictions.

With people traveling less, cultivating local customers remains a priority for Richemont and its peers. Burkhart Foundationchief financial officer of the group, said “today, demand is driven by local customers, in Japan, Europe and the US”

Indeed, Richemont said consumption patterns have changed so dramatically post-COVID-19 that no single geography is driving revenue or dominating the balance sheet. In the first half, the US, Europe and China generated the same level of sales, around 2 billion euros each.

While the demand is there, visibility on future trends remains unclear.

Regarding China specifically, Grund said “the demand is still there, but it’s disrupted because of the lockdown. Until there is a drastic change to zero-COVID China[-19] policy, the situation in the region remains difficult to read.

On Friday, as Richemont posted its first-half results, China announced plans to reduce the number of COVID-19 quarantine days to five from seven, an indication that the government is slowly beginning to ease restrictions on the “zero dynamic” COVID-19 policy.

China is not the only market that is difficult to read.

chief of Richemont John Rupert he said it remains “highly uncertain how the political, economic and social landscape will evolve in Europe and in our other key markets. We only know that we are likely to face an unstable period when the central bank tries to control inflation while the government tries to manage the pressure life is bad.

Despite the lack of visibility in China and elsewhere, Rupert said that Richemont is in “good health, with a clear strategy, desirable and enduring creations, strong maisons, professional teams and a strong balance sheet.”

Rupert said the assets will allow the luxury giant to weather “uncertain times, allowing us to look to the future with a mixture of caution, and confidence.”

He has plenty of reasons to be bullish.

In the first half, operating profit rose 26 percent to 2.72 billion euros, with chunky, double-digit profit margins in the watches and jewelry division. The company closed the half with a net cash position of 4.8 billion euros.

Sales at jewelry maison Richemont rose 24 percent in actual prices, with watches up 22 percent. Richemont said his three watch brands, understood to be IWCVacheron Constantin and Jaeger-LeCoultre, set to hit 1 billion euros in sales this year.

Sales in the fashion and accessories division (which excludes YNAP) rose 27 percent.

In his review, Rupert said that Chloé, Montblanc and Peter Millar contributed the most to the increase in sales of 27 percent, while Delvaux produced the sharpest growth rate in sales.

“We are carefully nurturing this promising maison for the long term,” said Rupert, referring to Delvaux, which Richemont bought in 2021.

Richemont said it saw double-digit gains, at actual exchange rates, across all business areas, channels and regions including Asia-Pacific where sales rose 3 percent, hampered by restrictions on travel and movement in China.

Analysts gave Richemont’s first half performance a big thumbs-up.

In its report, the Royal Bank of Canada points to “high quality and broad-based growth across Richemont’s portfolio,” while Luca Solca of Bernstein said the numbers show that “demand for luxury goods remains buoyant during the summer.”

Barclays said the jewelery division performed better than expected. It grew 21 percent in constant exchange in the second quarter of the year versus consensus projections of 13 percent. Earnings margin before interest and taxes for the jewelry division was 37.1 percent versus Barclay’s forecast of 35.6 percent.

In a phone call with media and analysts, Richemont executives said customers have been “upsizing” and “upscaling” their purchases, buying watches and jewelry with “real, lasting value” and putting their names on waiting lists for new styles and collections from face brand.

That happened despite a price hike of about 4 to 8 percent across brands this year.

As usual, Richemont executives did not comment on the current trade, but the third quarter sales trend is understood to be in line with those of the previous quarter.

Asked about the growth trend in the US, Jérôme Lambert, Richemont’s chief executive, said while the numbers were still strong, “we are seeing less exceptional growth in the region.”

Richemont came in against strong comparative numbers in the third quarter, and said it expects growth rates in the US to begin “normalizing.”

The company added that it sees “some signs” of a recession in the US, but luxury is not good, and the cost of living crisis has not affected the group’s customers.

During the presentation, Grund said that Richemont is proposing the sale of YNAP’s majority stake to Farfetch and Alabbar pending antitrust approval, which is expected to take up to a year. The initial phase of the transaction is expected to be completed before the end of the 2023 calendar year.

As reported, Farfetch and Alabbar have agreed to acquire 47.5 percent and 3.2 percent respectively of YNAP, leaving Richemont to hold 49.3 percent. Rupert reiterated that the deal will “realize my long-standing goal of making YNAP a neutral industry-wide platform, without holding a controlling shareholder.”

In exchange, Richemont will receive Farfetch shares, expected to represent 12 to 13 percent of Farfetch’s issued share capital. The two partners plan to work together to accelerate the quality and global penetration of the Richemont brand online.

The Richemont brand plans to adopt Farfetch technology “to achieve efficiency, flexibility and speed in serving the needs of our clients, getting our products to the right place, at the right time, in a seamless manner.” YNAP will adopt Farfetch Platform Solutions to “enhance its prospects,” according to Richemont.

In the first half, Richemont booked a 2.9 billion euro loss from discontinued operations following a 2.7 billion euro noncash write-down of YNAP’s net assets. Prior to the proposed sale, Richemont had classified YNAP as a “discontinued operation” on its books.

In the first half, YNAP saw sales grow by 11 percent in actual exchange rates and by 4 percent in constant exchange. Richemont said growth was led by Net-a-porter and Mr Porter, with “marked performances” in the UK and US.

Yoox revenues grew midsingle digits. Outnet, which launched in the US in May, has been affected by reduced product availability and increased competition. At FengMao, Richemont and Alibaba’s business in China, revenue increased in the high double digits compared to the previous year’s period.

On Friday, the company also said that Patricia Gandji will join the group’s senior executive committee in her capacity as chief executive officer and CEO of Regions. Gandji will continue to report to the company’s CEO, Lambert.

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