Cartier Parent Richemont Warns on Profit After Slide in Sales -- 5th Update
September 14 2016 - 10:05AM
Dow Jones News
By Brian Blackstone in Geneva and Manuela Mesco in Milan
Switzerland's high-end watch industry on Wednesday showed more
signs of buckling under the weight of weaker global growth,
volatile currencies and sluggish tourism in Europe, as the sector
saw its second major profit warning in as many months.
Cie. Financière Richemont SA, the maker of Cartier jewelry and
watches, issued a profit warning as it posted a tumble in sales. In
July, Swatch Group AG--owner of expensive brands such as Omega,
Blancpain and Breguet in addition to its cheaper plastic watch
line--reported a 52% plunge in first-half profit.
Luxury brands across Europe have struggled in recent months,
with the trend particularly pronounced in Switzerland, where
companies face the added difficulty of the strong Swiss franc.
Watch exports have plunged in recent months, government and
industry data show.
Reflecting divergence within Europe, Richemont's announcement
came as French luxury rival Hermès International SCA posted a 13%
rise in net profit during the first half of the year, though
management abandoned a 8% annual sales growth target. Hermès watch
sales grew slightly, but were weaker than other product lines,
underscoring the challenges facing sellers of pricey timepieces
when negative interest rates have increased uncertainty about
incomes and the economic outlook.
Shares in Hermès dropped around 7% following the change in sales
outlook, while those in Richemont fell 4%.
Geneva-based Richemont said sales fell 14% for the five months
through August from the same period the previous year. It also said
it expects operating profit for the six months through September to
fall around 45%.
"We are of the view that the current negative environment as a
whole is unlikely to reverse in the short term," the company
said.
Longer term, Richemont is more bullish. Speaking at the
company's annual general meeting at a luxury hotel in Geneva,
Richemont Chairman Johann Rupert said, "We remain convinced of the
long-term prospects for luxury goods globally." The world economy
faces a problem of oversupply in other sectors such as automobiles
in addition to luxury goods, though Richemont is well positioned
with a strong balance sheet and premium brands, Mr. Rupert
said.
Some analysts backed that view, saying sales should reach a
trough later in the year and start to pick up, partly a reflection
of more favorable comparisons with the company's performance in
2015. The watch industry has seen soft patches before only to
bounce back as it did after the global financial crisis.
Others see deeper forces at work that could weigh on the
industry for years.
"We don't expect a V-shaped recovery seen in 2009-2010; instead
we expect a mild growth with Swiss watch exports in absolute value
to record a new high only in [seven] years, after 2020," analysts
at Macquarie Research wrote in a research note last month. "This is
similar to what was seen in the '70s during the Quartz Crisis,"
they said, referring to competition from U.S. and Asian quartz
watches like Seiko four decades ago.
Watchmakers have been hit by a series of shocks in recent years.
Weaker global growth that depresses incomes, an anticorruption
drive in China, terror attacks in shopping hubs such as Paris that
have hurt tourism, and new competitors, particularly makers
smartwatches, have all weighed on demand.
Richemont said sales were down in much of Europe, "particularly
in France, due to a significantly lower level of tourist
activity."
In Asia, sales growth in mainland China and Korea "was more than
offset by the continuing weakness of the Hong Kong and Macau
markets," where the company is buying back inventory, Richemont
said. Sales in Japan declined sharply, in part due to the strong
yen that hurt tourism.
Sales also fell in the Americas, but at a slower rate than in
other regions. They grew in the U.K. after the referendum to leave
the European Union, which weakened the pound.
Hermès sounded a cautious note about its prospects. "There's a
lot of uncertainty," said Chief Executive Axel Dumas, who specified
that the company wanted to remain flexible in terms of forecasts
for the year.
Luca Solca, an analyst at Exane BNP Paribas, said that
abandoning the 8% target for sales growth this year that the
company had given previously was a sign that Hermès's growth would
normalize.
Write to Brian Blackstone at brian.blackstone@wsj.com and
Manuela Mesco at manuela.mesco@wsj.com
(END) Dow Jones Newswires
September 14, 2016 09:50 ET (13:50 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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