Cie. Financiere Richemont SA (CFR) said its 3.86 billion-euro ($5.2 billion) cash pile will help its 20 brands grow as the luxury-goods maker ruled out selling any labels, including ailing bagmaker Lancel.
The French maker of Brigitte Bardot purses isn’t for sale after its parent company studied strategic options, Chief Financial Officer Gary Saage said today on a call with reporters. Richemont can get better returns by investing in its current brands rather than disposing underperforming assets, the company decided after finishing a portfolio review, he said.
Johann Rupert, the South African billionaire who began a one-year sabbatical from his position as chairman in September, said in May that the Geneva-based company should have been quicker to cull bad investments. The departure of the head of Richemont’s fashion and leather-goods businesses earlier this year sparked speculation that parts of that business might be on the block after underperforming jewelry and watchmaking brands such as Cartier and Jaeger-LeCoultre.
“The decision not to sell anything in the medium term is the best solution,” said Stephanie D’Ath, an analyst at Sanford C. Bernstein in London. “They have cash on the balance sheet and that gives them money to invest. In a few years, if the market is more positive and there is a good buyer, they may reconsider.”
The stock traded 1.9 percent lower at 91.20 Swiss francs at 11:25 a.m. in Zurich after Yves-Andre Istel, a former Rothschild Inc. executive who replaced Rupert as chairman, said in a statement that the “subdued overall environment and in particular our continued investments for the long-term call for increased caution.”
Operating profit dropped 0.7 percent to 1.37 billion euros in the six months through September, hurt by the weakness of currencies such as the Japanese yen, Richemont said. Analysts expected 1.4 billion euros, according to estimates compiled by Bloomberg.
While the comparisons for the Christmas season will be easier this year, currency shifts will weigh on second-half earnings, Richemont said.
Richemont has devised turnaround plans for Montblanc and Alfred Dunhill, the two units that were suffering the most, Saage said. Montblanc’s operating profit dropped 55 percent in the first half to 24 million euros, partly due to provisions for a shakeup that includes exiting high-end jewelry for women.
Montblanc’s new head Jerome Lambert plans to change the maker of pens, watches and accessories into a “more accessible” luxury brand. For the first time, Dunhill is led by a “product guy” after Fabrizio Cardinali, a former chief executive officer of Lancel, took over management of the unit, Saage said. Dunhill plans to focus on its “Britishness” and on menswear and leather.
The only brand Richemont was considering strategic options for was Lancel, Saage said today. Bernstein estimates the unit is worth 300 million euros to 500 million euros, while Rene Weber, an analyst at Bank Vontobel, has said it might be worth about 200 million euros.
The company said last month it won’t sell online fashion retailer Net-a-Porter after Il Sole 24 Ore said Yoox SpA held talks with Richemont about a merger with the online retailer and discussions stalled.
The Swiss company’s net cash increased 27 percent as of Sept. 30 compared with the same date a year earlier. Operating profit of a unit that includes fashion, accessories, Net-a-Porter and watch component production almost tripled to 35 million euros as sales rose 6 percent to 712 million euros.
Total first-half sales increased 4.3 percent to 5.32 billion euros.
Revenue in the Asia-Pacific region, the source of about 40 percent of Richemont’s sales last year, is rising more slowly as China cracks down on the use of watches and jewelry as bribes and illegitimate gifts. Growth in that market was 4 percent in the first half, excluding currency shifts. Asia-Pacific revenue rose 5 percent on that basis in the past fiscal year and 46 percent in the prior 12 months.
“While sales may increase in the second half, profit growth may be limited as the company spends on investment,” said Rey Wium, an analyst at Renaissance Capital in Johannesburg.
Richemont plans capital expenditure of 800 million euros to 850 million euros this fiscal year and a net increase of 50 stores, some of which may be larger, Saage said.
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