Luxury keeps on growing

The US-China trade war, anti-government protests in Hong Kong, China’s sluggish growth, Britain’s exit from the European Union, the Democrats’ plan to tax America’s biggest fortunes… nothing, it seems, can dent the optimism of luxury companies, or at least French luxury companies which remain in rude health. For Q3 2019, at constant exchange rates sales increased by 15% at Hermès, 11.6% at Kering and 11% at LVMH, suggesting all three can feel confident about the future. At the head of Kering, François-Henry Pinault confirmed this sentiment as he commented the group’s latest results, declaring that “in an increasingly complex environment, we have the ambition and the means to sustain our profitable growth momentum.”

Richemont’s chairman Johann Rupert, a man otherwise known for his reserve, was equally upbeat about the group’s six-month results to end September, announced on November 8th: “The strength of our balance sheet, our financial discipline, and the agility, creativity and skills of our teams position us well for the long term.” A statement it would be difficult to contradict, in particular where the group’s balance sheet is concerned, with equity two and a half times greater than long-term debt and a net cash position of almost €2 billion. Despite a cool reception from the financial community, reflected in a drop in share price of some 8% over one week, these half-year results indicate that the group is performing well.

Glittering sales in jewellery

Richemont’s sales for the period under review progressed 9% to €7.4 billion (+6% at constant exchange rates). Operating profit increased 3% to €1.2 billion with operating margin at +15.7%. Excluding a post-tax non-cash gain on the revaluation of the Yoox Net-A-Porter shares held prior to buyout, profit remained broadly stable at €869 million. Closer analysis shows that most of this growth and profit came from the group’s jewellery Maisons (Cartier, Van Cleef & Arpels) whose sales grew 8% with an operating margin comfortably in excess of +32%. In contrast, sales by specialist watchmakers barely progressed, with a margin in the region of +18%. As expected, the situation in Hong Kong, the main market for Swiss watches, was reflected by the more than 10% contraction in revenue in this special administrative region, which accounted for 8% of total sales compared with 11% one year previous. Unsurprisingly in this context, Richemont’s latest acquisition, in September, took place in the jewellery segment with the buyout of Italian jeweller Buccellati for an estimated €230 million. The multinational could also decide to bid for Tiffany, currently in the sights of LVMH.

Further mixed results came from the group’s online distributors (Yoox Net-A-Porter, Watchfinder). Their sales spiked 31% to €1.2 billion but this was coupled with a 69% increase in operating losses to €194 million. Richemont is strongly embracing e-commerce and is prepared to make the necessary investments to remain at the forefront of technology and occupy key markets such as China, where it has a joint venture with Alibaba. “We are undertaking a significant transformation to ensure our Maisons and businesses will continue to prosper in a more connected world,” commented Johann Rupert, adding that “these objectives require time, investment and flawless execution.” And time is indeed on the side of luxury companies. Since January 2009, Richemont’s market capitalisation has gained 260%.