LONDON — Are storm clouds gathering over luxury?
It’s hard to tell, say principals at Compagnie Financière Richemont. There is still volatility in China, growth is slowing in the go-go U.S. market, and COVID-19 continues to impact consumer behavior.
Despite all of that, demand for high-end watches, jewelry and accessories remains robust, said Richemont, which posted a strong set of results for the fiscal first half ended Sept. 30.
At actual exchange rates, Richemont saw a 24% rise in sales to 9.68 billion euros, and a 40% spike in profit from continuing operations to 2.11 billion euros.
On Friday, Richemont’s shares surged more than 10 percent to close at 118.10 Swiss francs.
The parent of brands including Cartier, IWC and Chloé reported a 766 million euros loss in the six months due to a noncash write-down of assets linked to its proposed sale of Yoox Net-a-porter Group to Farfetch and Alabbar.
Watch on FN
The deal, revealed in August, will see Farfetch eventually take control of YNAP, while Richemont and Farfetch will work together on e-commerce and other digital strategies. As part of the deal, Richemont will also take a minority stake in Farfetch.
While Richemont managers spoke at length about volatility and a lack of visibility in the market right now, one thing is certain: COVID-19 continues to reshape consumption patterns worldwide for better, and worse.
In the U.S., pent-up demand from lockdown is fueling sales, while Chinese spending remains hobbled by ongoing COVID-19 restrictions.
With people traveling less, cultivating the local customer remains a priority for Richemont and its peers. Burkhart Grund, the group’s CFO, said “today, demand is driven by local customers, in Japan, Europe and the U.S.”
Indeed, Richemont said consumption patterns have changed so dramatically post-COVID-19 that no single geography is driving revenue or dominating the balance sheet. In the first half, the U.S., Europe and China generated a similar level of sales, around 2 billion euros each.
While the demand is there, the visibility on future trends remains unclear.
Regarding China specifically, Grund said “demand is still there, but it’s disrupted due to lockdown. Until there is a drastic change to China’s zero-COVID[-19] policy, the situation in the region remains difficult to read.”
On Friday, just as Richemont was delivering its first-half results, China unveiled plans to reduce the number of COVID-19 quarantine days to five from seven, an indication the government is slowly beginning to ease restrictions on its “dynamic zero” COVID-19 policies.
China isn’t the only market that’s proving difficult to read.
Richemont chairman Johann Rupert said it remains “highly uncertain how the political, economic and social landscapes will evolve in Europe and in our other key markets. We only know that we will likely face volatile times ahead as central banks seek to rein in inflation while governments try to manage severe cost of living pressures.”
Despite the lack of visibility in China and elsewhere, Rupert argued that Richemont is in “good health, with a clear strategy, highly desirable and enduring creations, strong maisons, professional teams and a robust balance sheet.”
Rupert said those assets will enable the luxury giant to weather “uncertain times, allowing us to look to the future with a mix of vigilance, and confidence.”
He has many reasons to be bullish.
In the first half, operating profit was up 26% to 2.72 billion euros, with chunky, double-digit profit margins in the watch and jewelry divisions. The company closed the half with a net cash position of 4.8 billion euros.
Sales at Richemont’s jewelry maisons rose 24% at actual rates, with watches growing 22%. Richemont said three of its watch brands, understood to be IWC, Vacheron Constantin and Jaeger-LeCoultre, are set to hit 1 billion euros in sales this year.
Sales at the fashion and accessories division (which no longer includes YNAP) surged 27%.
In his overview, Rupert said Chloé, Montblanc and Peter Millar contributed most to the 27% sales increase, while Delvaux generated the sharpest growth rate in sales.
“We are carefully nurturing this promising maison for the long term,” said Rupert, referring to Delvaux, which Richemont purchased in 2021.
Richemont said it saw double-digit gains, at actual exchange rates, across all business areas, channels and regions excluding Asia-Pacific where sales grew by 3%, hampered by restrictions on travel and movement in China.
This story was reported by WWD and originally appeared on WWD.com. Read the full story on WWD.com.
