Jan 12, 2017
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Jewellery, watch recovery helps Richemont return to growth

Jan 12, 2017

Strong demand for jewellery and improved watch sales in its own stores helped luxury goods group Richemont beat forecasts with a 5 percent rise in sales in the quarter to December, in a sign the watch industry may see a recovery this year.

While it's frustrating that Richemont doesn't give details about its Chloé operations, signs of recovery in the watch sector are always encouraging as they suggest the recent luxury rout may be fading.

Swiss watchmakers have been grappling with weak demand in their biggest markets, Hong Kong and the United States, and Chinese tourist shoppers avoiding Europe for fear of extremist attacks, so the improvement across all Richemont's major regions is good news for the industry.

Cartier is one of Richemont's key brands - archiv

"The 10 percent growth in sales in the Asia Pacific region reflected strong performances in mainland China and Korea, mitigated by continued declines in Hong Kong and Macau," the Geneva-based maker of IWC watches and Cartier jewellery said in a statement on Thursday.

Richemont shares, down a fifth over the last two years, were indicated 5 percent higher in pre-market trading. Shares of peer Swatch Group were seen up 3.6 percent.

A 5 percent rise in sales at constant exchange rates is a clear improvement over the 12 percent decline in the group's first half, helped by an easier comparison base and beating forecasts for flat growth in a Reuters poll.

At actual exchange rates, sales rose 6 percent to 3.09 billion euros ($3.28 billion), ahead of the 2.96 billion euro poll average.

The improvement was led by jewellery, but watch sales in the group's own stores also picked up and the decline at multibrand retailers slowed.

Europe saw 3 percent growth in constant currencies, helped by robust sales in Britain.

Analysts highlighted the return to growth in Asia Pacific driven by mainland China, a positive surprise in Europe, flagship brand Cartier's strong performance and the improvement in the high-margin watch retail business.

"2017 is going to be a very good year, and actually something of a vintage after the slowdown of the last few years," Kepler Cheuvreux analyst Jon Cox said.

Watch sales, which make up about half of Richemont's revenue, started to decline in 2014 when political protests in Hong Kong put an end to mainland Chinese shopping sprees. Islamist attacks in Paris in November 2015 dealt another blow, also hitting the generally more buoyant jewellery segment.

Two months ago - after controlling shareholder Johann Rupert vented his anger about "unacceptable" performance - Richemont reshuffled management, abolishing the CEO role to divide responsibility among senior executives.

It also cut jobs, bought back inventory and closed shops. Richemont cautioned full-year net profit, due on May 12, will face a tough comparison.


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