Richemont – Swiss parent of luxury brands like Cartier, Dunhill and Montblanc – is blaming a Hong Kong sales slump for a tough half year ahead.
Reporting its half year figures on Friday, the company said it expected a “challenging second half” which led to an immediate nine per cent fall in its share price.
Hong Kong accounts for about 16 per cent of Richemont’s global sales and the Mainland a further eight per cent. Asia, excluding Japan, accounted for 34 per cent of the group’s total revenue.
“The significant sales decline in Hong Kong and Macau during the period was partly offset by positive developments elsewhere. In particular, Mainland China resumed growth with strong retail sales, largely offsetting challenging wholesale sales,” the company said in its trading statement.
Japan reported strong momentum, both from local and tourist demand, helped by the favourable exchange rate movements.
Richemont said its global sales through its company-owned stores – which account for just over half its turnover – rose 13 per cent in the first half year at constant currencies. However, wholesale sales fell six per cent. Combined sales increased by 15 per cent at actual exchange rates or by just three per cent at constant exchange rates.
Shipments of Swiss watches to Hong Kong fell 20.5 per cent in the first nine months of this year, due to falling demand. And Richemont, with such a large part of its global operations in the territory, is very exposed to such a drop.
The company’s CGO Gary Saage said its margins had fallen in the first half to September – and in October demand had slowed even further. However there was a small upturn in the mainland last month
“It’s been a long time coming. Mainland China in total grew one per cent and, clearly, within that our own retail grew significantly,” he told analysts in a briefing.
“Wholesale is still extremely challenging and we don’t know when that will get better, but we take comfort in that our retail networks in both watches and jewellery are performing.
“Headline numbers in watches will take time to recover,” Saage said.
Gross profit increased by 13 per cent and accounted for 65 per cent of sales. The 100 basis points margin decrease versus the prior period largely reflected the impact of the Swiss franc’s appreciation and lower capacity utilisation, partly offset by the positive effects of other exchange rates and the growing proportion of retail sales, the company reported.
Richemont also owns the Baume & Mercier, IWC International Watch, Jaeger-LeCoultre, Piaget, Roger Dubuis and Vacheron Constantin.
