Richemont Declines as Sales Miss Analyst Estimates on Asia

Cie. Financiere Richemont SA, the owner of the Cartier brand, fell the most in a year in Zurich as Asian revenue stopped growing in the third quarter and the jewelry unit’s sales slowed.

The shares fell as much as 7.3 percent, the biggest intraday decline since September 2011. Revenue rose 5 percent excluding currency shifts in the three months through December as Asia Pacific sales didn’t rise in the period for the first time in four years, according to a statement from the Geneva-based maker of IWC watches. The average of 13 analysts’ estimates was for growth of 8.9 percent.

Decelerating growth in China is a concern for luxury companies. Chinese buyers account for 25 percent of global luxury spending, according to a September HSBC Global Research report. Sales of Cartier timepieces probably declined as Asian buyers switch to models that don’t use batteries and cost more to make, said John Guy, an analyst at Berenberg Bank.

“Cartier watches is an area of underperformance,” he said by phone. “Asian buyers’ tastes are changing, and they need to invest more in the automatic, manual-winding segment.”

Revenue from the company’s jewelry unit, which includes Cartier, slowed to 8 percent in the third quarter from 20 percent in the first half. The gross margin of a stainless steel quartz Cartier watch, which uses a battery, is 80 percent, compared with about 65 percent for a gold, automatically-winding watch from the same brand, he estimates.

Gift Slowdown

Retailers in Hong Kong and mainland China became more “cautious,” and it’s unclear how revenue in the region will evolve, Richemont said.

China’s economy expanded 7.8 percent last year, the slowest pace since 1999. Chinese consumers often buy watches in Hong Kong or Europe to avoid mainland China’s taxes. Hong Kong watch and jewelry retail sales fell for the first month in three years in August.

“There are little clouds on the horizon, and there’s going to be a period where the data are fragile,” said Jon Cox, head of Swiss research at Kepler Capital Markets in Zurich.

Watches are often given as business gifts in China, and purchases may be delayed ahead of the transition in the country’s leadership, which began in November and will be completed in March, Cox said. The timing of the Chinese New Year, which is in February this year and was in January in 2012, may have also delayed some sales, he said.

Baume Alliance

Richemont’s Baume & Mercier brand agreed to form a joint venture in mainland China with Chow Tai Fook Jewellery Group Ltd. to distribute the Swiss brand’s watches, the Chinese jeweler said Jan 19. Chow Tai Fook is the world’s largest jewelry chain by market value.

Richemont’s stock traded 5.3 percent lower at 74.50 Swiss francs at 12:23 p.m. local time. The stock has gained 41 percent in the past 12 months and traded at a record 81.45 francs Jan. 18.

Revenue from Richemont’s watch division gained 9 percent excluding currency shifts, below the average analyst estimate of 11 percent growth. Watchmakers including Jaeger-LeCoultre and Lange & Soehne timepieces generated about a quarter of Richemont’s sales in the three months through December.

Sales at Richemont’s jewelry unit increased 4 percent at constant exchange rates, trailing the 10 percent expected by analysts. The division generates about half of the company’s sales. Richemont also gets revenue from businesses including online fashion retailer Net-a-Porter and Alfred Dunhill, the London-based maker of leather goods, fashion and lighters.

Swatch Sales

Swatch Group AG, the world’s biggest maker of Swiss watches, said Jan. 10 that it expects “healthy growth” this year after gross revenue in 2012 climbed 14 percent to 8.14 billion francs ($8.7 billion).

“Richemont has been more affected than Swatch by the slowdown because it has higher exposure to the high-end segment,” said Rene Weber, an analyst at Bank Vontobel in Zurich. “Swatch has more exposure to the mid-range segment, which is still doing well.”

Richemont has named Bernard Fornas, who previously ran Cartier, to join Deputy Chief Executive Officer Richard Lepeu as joint chief executive officers from April. Chairman Johann Rupert, who founded the company, is giving up the CEO position then.

Richemont doesn’t report third-quarter profit. The company in November reported a 53 percent gain in first-half profit as revenue increased 12 percent excluding currency shifts.

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