That was the message from the luxury goods giant, parent of brands including Cartier, Van Cleef & Arpels, Chloé and Alaïa, which remains optimistic despite an uneven set of first-half results and lackluster demand in China.
In the first six months, sales fell 1 percent to 10.1 billion euros, dented by weak demand in Asia-Pacific, and in the specialist watch category. Sales at that division, home to brands including IWC, Panerai and Vacheron Constantin, declined 17 percent to 1.7 billion euros.
Compared to its luxury peers, Richemont’s first-half shrinkage was small thanks chiefly to jewelry, the group’s largest division, where sales rose 2 percent to 7.1 billion euros. The division benefited from robust demand worldwide, with the exception of China.
Nicolas Bos, Richemont’s chief executive officer and the former head of Van Cleef & Arpels, said high-end pieces, special commissions, and well-known collections such as Cartier’s Love and Van Cleef & Arpels’ Alhambra, were in demand across the globe, regardless of price.
Nicolas Bos
Burkhart Grund, chief finance officer, said stripping out the impact of China, Hong Kong and Macau, Richemont is growing at around 11 percent at constant currency rates, led by the jewelry maisons.
“That is quite a strong, healthy expansion across all lines and price points,” he said.
In a report following the results on Friday, Goldman Sachs called out the “ongoing strength” of Richemont’s jewelry division, while J.P. Morgan described jewelry as a “very bright spot, and a true exception” in the luxury goods reporting season.
By contrast, Richemont’s specialist watchmakers underperformed, with demand dented by the slowdown in China.
Richemont said the decline in demand for watches “highlights the need for discipline and caution regarding overproduction, and underscores the importance of adapting to changing market conditions,” which will ultimately preserve the watch brands’ “desirability.”
As for China, Bos said he’s not expecting the market to pick up anytime soon, and echoed the company’s founder and chairman Johann Rupert in referring to the slowdown as “a midterm, or long-term phenomenon.”
Despite that gloomy prediction, Bos said Richemont’s brands remain “desirable,” and that the group would continue to stage sales and marketing events in the region.
“It would make no sense to decrease our visibility or activities in China. I think the last thing in the world we would want to do is stop displaying all the creativity, novelty and vitality of our brands,” Bos said.
Other regions were able to partially offset the slowdown in China, with Japan, the Americas and the Middle East and Africa all notching double-digit gains. Japan was up 32 percent; the Middle East and Africa, 11 percent, and the Americas 10 percent at actual exchange rates.
In Europe, sales were up 4 percent, while in Asia-Pacific, they were down 19 percent.
A lack of appetite in China wasn’t the only challenge in the period.
Richemont’s profit margins also suffered due to higher raw material costs, foreign exchange headwinds and the company’s efforts to keep a lid on retail prices, especially in markets that rely on locals, rather than tourists.
Those factors weighed on profits in the six months to Sept. 30.
Operating profit for the period was down 17 percent to 2.21 billion euros. Profit from continuing operations fell 20 percent to 1.73 billion euros in the six-month period.
Taking into account a loss of 1.27 billion euros from a non-cash write-down of Yoox Net-a-porter, profit for the six-month period fell to 457 million euros from 1.51 billion euros in the corresponding period last year.
A look at Cartier’s “The Power of Magic” exhibition in Shanghai.
All of the product divisions saw their operating profits decline.
Jewelry fell 5 percent to 2.33 billion euros, which Richemont blamed on higher raw material costs, particularly gold. It also said the jewelry maisons continued to invest in distribution and marketing to support “existing and future demand.”
Operating profit at the specialist watchmaking division was down 59 percent to 160 million euros, reflecting the impact of the decline in sales on fixed operating costs.
Richemont said other factors affecting profitability included a stronger Swiss franc, and the timing of its Watches & Wonders event in April this year, versus March in 2023.
Sales at Richemont’s “other” division, which includes fashion, real estate, watch component manufacturing, and the Watchfinder resale business, were up 4 percent.
Within that division, fashion and accessories sales rose 2 percent driven by the performance of Alaïa and Peter Millar.
The “other” division recorded an overall operating loss of 52 million euros, 23 million euros of which came from fashion and accessories.
Richemont said the fashion loss reflected “varied performances and ongoing strategic investment” to boost desirability and visibility of the fashion houses, which include Chloé, Dunhill, Delvaux and Gianvito Rossi.
Gisele Bündchen joins IWC Schaffhausen at the Watches and Wonders in April in Geneva.
Bos and Grund also addressed the sale of YNAP to Mytheresa, arguing that the latter will be an ideal home for the division.
“For us, it was not [just about] finding the right place for YNAP. If the deal completes, this will ultimately be a business in which we will hold a third of the share capital. We will be left with a very strong customer-facing business, which is what we ultimately wanted to achieve,” said Grund.
Last month Richemont struck a deal that will see luxury online retailer Mytheresa acquire 100 percent of Yoox Net-a-porter group with the ambition of creating a 4 billion euro online juggernaut in the luxury fashion space.
Richemont is selling YNAP to Mytheresa with a cash position of 555 million euros and no financial debt, in exchange for shares. Richemont will also make available a six-year revolving credit facility of 100 million euros to finance YNAP’s general corporate needs, including working capital.
Mytheresa will hand Richemont shares representing 33 percent of its fully diluted share capital. Richemont will also have the right to nominate a member and an observer to the Mytheresa board following the close of the deal, which is expected to take place in the first half of 2025.
An image from the Mytheresa pre-fall 2024 campaign.
In a statement accompanying the results, Rupert said the group had delivered “sustained resilience in a world where uncertainty has become the norm. We saw solid sales growth across most of our regions offsetting continued weakness in Chinese demand, which, as I had predicted, will take longer to recover and is particularly affecting our specialist watchmakers.”
Rupert emphasized that “what we are seeing in the world today is not unprecedented. It illustrates just how important it is to have strong leadership with a long-term vision, to continue to invest in our maisons’ excellence in crafting and marketing distinctive and timeless creations, to manage our offer with discipline, and to have an agile structure and a solid balance sheet.”
Rupert added that while he remains cautious in the uncertain context, “I am confident in our ability to navigate the current as well as future cycles and to deliver sustained value over the long term for all stakeholders.”
A gold and coral Alhambra necklace by Van Cleef & Arpels.
He wrote that “in an uncertain demand recovery scenario, we see Richemont as a fundamentally stronger business than during prior industry downturns: greater scale, more balanced product/geographic mix, shorter production lead times, greater share of own retail distribution, cleaner inventories in wholesale, more cash and potential succession changes.”
Chauvet noted that Richemont shares have outperformed in the year to date, and are up 14 percent compared with the luxury sector’s minus 1 percent. He retained the “buy” rating on the stock.
Goldman Sachs said following peer updates from LVMH Moët Hennessy Louis Vuitton, Kering and Moncler that highlighted a challenging market for luxury players, “we think the resilience of Richemont’s jewelry division is the key positive today, and implies market share gains for the group.”
Following Friday’s results announcement, Richemont shares closed down 5.8 percent at 120.35 Swiss francs.
