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CIE FINANCIERE RICHEMONT-REG
CIE FINANCIERE RICHEMONT-REG
A pretty recovery in Q3
12 Jan 17
Market momentum has returned to being more favourable for watchmakers in the last two months with a softer decline of 5.6% in November compared to -16.4% in October for overall Swiss watch exports. Richemont posted a 5% increase in Q3 sales at CER (6% on a reported basis) to €3,093m. Things turned around in all regions, led by a recovering favourable momentum in Asia. The region grew by 10% to €1,130m, underpinned by the outperformance in Mainland China. The American market has performed well, surging by 8% (€559m) and benefiting from the strong desirability for the group’s jewellery. Europe posted modest growth of 3%. Sales in Japan, the Middle East and Africa were down 1% to €543m. Directly operated stores have outperformed with an increase of 12% (€1,858m) compared to a slight retreat of 3% for the wholesale network. By speciality, Jewellery Maisons experienced strong momentum mainly in the US with sales soaring by 8% to €1,746m. Specialist watchmakers fell back by 2% to €813m. Other sales were up to €534m (+7%), boosted by the outperformance of Chloé, Montblanc and Peter Millar. Ytd sales are down 6% at CER (-7% on a reported basis) pulled by a 15% decline in Japanese sales and an 11% drop in Europe. Watchmakers consolidated a decline of 12% over the first nine months compared to -6% for Jewellery Maisons. The group’s net cash position amounted to €5.2bn by the end of December.
CEO and CFO to retire following the sharp dip in H1 performance
04 Nov 16
The challenging environment is still weighing on Richemont. Sales were down 12% at CER in H1 to reach €5,086m. The inventories’ buy-back problem has exacerbated the situation, pulling down the decline by 4pp at CER. Wholesale sales slipped 20% to reach €2,115m. The decline was softer with owned boutiques which slid 5% to €2,971m. All business segments were impacted by the tough market conditions. Jewellery has resisted better with a sales drop of 13% compared to 17% for watches. The market momentum’s deterioration was experienced in all regions, led by Europe which dropped 17% at CER to €1,587m. The continuing growth in mainland China has partially offset the slumping demand in the region and has softened the dip to 8% at CER. In the Americas, revenue retreated slightly by 5% to €821m. The adverse FX moves weakened sales in Japan by 22%. Given the degraded sales growth, profitability has also deteriorated and margins collapsed. The gross margin has fallen by 150bp to 64%, drawing from a gross profit of €3,230m. Operating profit slid by 43% to reach €798m, i.e. an operating margin of 16% vs. 24% a year earlier. It is worth noting that the operating profit includes one-time charges of €249m related to the inventories’ buy-back initiative and the optimisation of some locations. Excluding these exceptional charges, operating profit would have declined by 25%. Net profit has halved to €540m. Capex amounted to €210m, incurred in selective investments in the Maisons’ network of boutiques. The net cash position has narrowed slightly to €4,552m. On the back of this poor performance, the group’s CEO “Richard Lepeu” and CFO “Gary Saage” will retire next year.
14 Sep 16
Sales for the five months ended 31 August were down 14%. Jewellery retreated by 16% and watch sales dropped 19%. All regions posted double-digit declines except for the Americas (-8%) which benefited from a favourable momentum in jewellery and accessories. In Europe (-20%), neither nationals nor the favourable momentum in the UK managed to offset the slowdown caused by the decrease in tourist flows. Macau and Hong Kong continued to deliver weak momentum, tearing down the growth in mainland China and Korea. Furthermore, the policy of inventory buy-backs in order to avoid clearance sales will stretch the balance sheet and weigh on the cash position. Richemont’s other businesses, as a whole, reported sales growth, thanks to positive performances at Montblanc, Chloé, Azzedine Alaïa and Peter Millar. Operating profit could drop by 4.5% in 2016 including one-off restructuring costs of c.€65m.
Bearish short-term outlook
20 May 16
Richemont experienced a tough H2 16 (FY-end March 2016), resulting in a poor sales performance and deteriorating margins. Reported FY16 sales grew by 6% to €11,076m, pulled up by the favourable FX impact as revenues dwindled by 1% at constant rates. The slumping demand in Asia erased the good performance displayed by other regions, mainly Japan. Reported sales posted double-digit growth in all regions except Asia-Pacific, which declined by 4%. Japan impressed with a 27% surge to €1,031m. Profitability has deteriorated and margins have retreated significantly. The gross and operating margins lost 180bp and 700bp respectively. The operating profit dropped by 23% to €2,061m due partially to an unfavourable comparable basis (disposal gain of €234m in the prior year) and one-off restructuring charges of €97m. On a comparable basis, the operating income retreated by 11%. Net profit surged by 67% to €2,227m pulled up by non-recurrent elements including €539m from discontinued operations (merger of Yoox-NAP) and an unfavourable comparable basis (huge forex losses in FY15). Jewellery Maisons showed a relative resilience to the challenging backdrop posting 7% sales growth and 4% lower operating profit (operating margin of 31.3% vs. 34.9% in FY15). Watchmakers reported a modest 3% sales increase while the operating result dropped by 29% (an operating margin of 16.1% vs. 23.4% in FY15). Fashion and accessories business improved by 11% to €1,803m, although the operating profit amounted to €-94m. The cash situation remains strong with an operating cash flow of €2,419m and a net cash position of €5,339m, broadly flat compared to last year. The strong cash generation was sustained by a controlled WCR with slightly decreasing inventories (-1.7%). The net acquisition of tangible fixed assets amounted to €613m, incurred mainly in the manufacturing facilities. The proposed dividend amounts to CHF1.7 vs. CHF1.6 in FY15. FY17 may have a bad omen with reported April sales dropping by 18% (-15% at constant rates). The poor performance is confirmed for all regions while, at constant exchange rates, only the Middle East & Africa posted positive growth. Mainland China was up by 26% at constant rates, offsetting the weakening demand in the rest of Asia.
Watches needed new batteries in Q3
14 Jan 16
Q3 sales grew by 3% at current currencies, and saw a 4% yoy decrease at constant rates. On a lfl exchange basis, only Japanese sales posted an increase (9%), albeit at a slower pace than in H1 (+44%). The Middle East & Africa activity remained modest showing unchanged sales. Otherwise, the other regions posted a yoy drop. By channel, retail sales outperformed wholesale with unchanged revenue vs. a 8% decline at constant rates. From a business standpoint, brands like Chloé and Montblanc drove growth for the other businesses segment out of Jewellery Maisons and Specialist Watchmakers which reported respective sales falls of 5% and 4% (at constant rates). Over the first nine months, the favourable exchange rates pulled up the sales which remained flat at constant currencies and up by 11% at actual rates.
Outperformance in the bag
24 Mar 17
IG Design has had a very good second half trading and has issued a year-end update indicating that numbers will exceed market estimates. We have lifted our FY17 and FY18 numbers by 8-10% at the pre-tax and EPS levels, following an 11% uplift to earnings with the interims. Particularly notable is the comment on strong cash flow, with the group reaching its target of average leverage less than 2.5x EBITDA two years ahead of plan. With the earnings and cash flow momentum, strong balance sheet and progressive dividend, there is good potential for further share price upside.
24 Mar 17
We note the share transaction yesterday, and think the stock will benefit from the increased liquidity. We continue to believe there is good valuation upside to the shares. However, we are terminating coverage of Watkins Jones from this morning and withdrawing our forecasts from the market.
Panmure Morning Note 20-03-2017
20 Mar 17
Today’s strong H1FY17 trading statement is encouraging on multiple levels; (1) H1FY17’s revenue growth of c.+23% to £32m indicates revenue growth running well above our forecast assumption of +15% for FY17 (August 2017); (2) the revenue growth continues to be broad-based across the two main brand groups (Focusrite and Novation) and all of TUNE’s global regions (USA, Europe, and RoW); (3) H1FY17’s constant currency revenue growth of c.+12% is a sequential acceleration from the c.+9.5% of H2FY16 and c.+5.5% of H1FY16; and (4) H1FY17’s net cash of £9.4m is well ahead of our forecast of £7.7m by August 2017, reflecting strong revenue/profit conversion combined with much improved w/c control. In short, we think there is excellent scope for our FY17 forecasts to be raised at the time of the H1FY17 results on May 3. We maintain our BUY.
20 Mar 17
Focusrite has positioned itself in a way that makes its shares a particularly attractive investment: leadership in a niche product area protected from general consumer swings; an international market structure that makes it relatively currency agnostic; a habit of profit over delivery; a strong and further strengthening balance sheet; and an undemanding valuation. This first half trading statement confirms every one of those points.