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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.

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.