May 15, 2014
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Richemont boosts dividend as sales growth stays robust

May 15, 2014

ZURICH, Switzerland - Cartier owner Richemont reported solid sales growth across most of its regions on Thursday, including improved demand in China, and announced a dividend hike and share buyback that sent its stock up more than 4 percent.


The Geneva-based group is enjoying a boom in jewellery sales driven by consumers in emerging markets who have more money to spend, and a taste for branded products. Demand for its watches in China - where a crackdown on giving expensive gifts to government officials had hit sales - is also improving.

"I think we've reached the bottom (in China). The situation has improved gradually. The worst was two years ago, but now it has picked up," Chief Finance Officer Gary Saage told reporters.

The luxury goods company, world No.2 to France's LVMH , did not provide an outlook but said it remained focused on long-term growth and value creation.

It raised its dividend to 1.40 francs per share, from 1 franc a year ago and announced a share buy-back of up to 10 million shares, worth around 873 million francs based on Wednesday's closing price.

"Our dividend strategy is unchanged. We want to increase it in a meaningful way over the long term, in good and bad times, " Saage told reporters on a call on Thursday.

April sales at constant exchange rates were up 6 percent, or 8 percent excluding Japan, where consumers rushed to buy big-ticket items ahead of a value added tax hike on April 1, resulting in a 47 percent jump in sales between January and March and lower sales in April.

In the year to March, sales rose 10 percent at constant currencies to 10.65 billion euros ($14.60 billion), just below forecasts in a Reuters poll. They were only up 5 percent on a reported basis, as a weak yen and tumbling emerging market currencies took their toll.

Net profit rose 3 percent to 2.067 billion euros in the fiscal year ended March 31, just short of a forecasts.

"Sales growth ... in April shows continuing improvement, but at a more moderate level to what we've seen recently," Exane BNP Paribas analyst Luca Solca said. He said the dividend confirmed the group's cash discipline and investor-friendly attitude.

Richemont shares, which are slightly down on the year so far, rose 4.4 percent at 0756 GMT, outperforming a firm sector index. They trade at 17.4 times forward earnings, at a small discount to LVMH, but at a premium to Swiss rival Swatch .

"Richemont is our top pick because it is trading at an unjustified discount ... considering its superior earnings growth prospects," Bernstein analyst Mario Ortelli said.

Fix underperformers

Co-Chief Executive Bernard Fornas said Cartier and Van Cleef & Arpels jewellery had a "stellar performance" in the year to March, but sales of Cartier watches had been suffering from lower wholesale orders.

The group confirmed that it wanted to hold on to its leather and fashion accessories businesses, after shelving disposal plans for some underperforming brands last year.

"We have hired the right teams and give them full support in investing in product development, supply chain, communication and distribution. We're fully integrating these brands into the Richemont supply chain," Fornas said, adding he was confident to turn them around, but it would take some time.

Its 'other business' segment, which includes leather brand Lancel and fashion brand Chloe, posted an operating loss of 80 million euros in 2013/14. Montblanc, which will from now on be reported within the 'other' segment, posted a small operating profit but saw sales decline 5 percent.

"Montblanc certainly didn't have a good performance this year, the team was in transition, sales were down," co-CEO Richard Lepeu said, adding the results included a non-recurring 25 million euro charge. Richemont is trying to improve the brand's performance by focusing on "accessible luxury" watches and accessories, as demand for high-end pens wanes.

$1 = 0.7294 Euros

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