Richemont Third-Quarter Sales Rise 33% on Asia; Outlook More Challenging
Cie. Financiere Richemont SA, the world’s largest jewelry maker, said fiscal third-quarter revenue rose 33 percent, helped by Asian sales of watches, and repeated that the fourth quarter will be tougher.
Revenue in the three months ended Dec. 31 increased to 2.11 billion euros ($2.8 billion) from 1.59 billion euros a year earlier, the Geneva-based maker of Jaeger-LeCoultre watches said today in a statement. That beat the 2 billion-euro average estimate of 10 analysts.
“The Asia-Pacific region is the main driver -- growth actually accelerated in local currency terms,” said Jon Cox, an analyst at Kepler Capital Markets with a “buy” recommendation on the stock. “The watchmakers are an obvious way to play China as well as a general resurgence of watch demand.”
Richemont fell as much as 2.8 percent in Zurich trading as Chinese stocks declined the most in two months. China and Hong Kong imported 3.8 billion Swiss francs ($3.9 billion) of Swiss timepieces in the first 11 months of 2010, accounting for a quarter of the European country’s watch exports. Richemont’s sales in the Asia-Pacific region rose 57 percent.
“Any weakness in China will have an impact on Richemont stock,” Cox said. “However, I would not bet against China.”
‘Challenging’ Fourth Quarter
Richemont stock was down 1.3 francs, or 2.3 percent, at 55.3 francs as of 9:42 a.m. as the Shanghai Composite index retreated 3 percent. Chinese stocks declined as the central bank ordered banks to set aside more reserves and rising property prices signaled policy tightening measures may be expanded.
Richemont said it expects the fourth quarter to be “more challenging” as year-earlier figures were stronger.
A rising franc will cut into gross margin due to the company’s manufacturing in Switzerland. The franc gained 19 percent against the euro in 2010.
Richemont also said it expects changes to product lines at one of its watchmaking companies to weigh on its gross margin, without specifying which brand. Baume & Mercier, the luxury- goods maker’s lowest-end watch brand, plans to start selling new products in April, the company said in November.
“The gross margin comment is an obvious one due the currency situation and the planned changes are connected to a relaunch of Baume & Mercier,” said Rene Weber, an analyst at Bank Vontobel in Zurich.
Richemont bought full control last year of online fashion retailer Net-a-Porter.com, which sells Miu Miu sandals, Robert Cavalli blue jeans and Alexander McQueen scarves. Net-a-Porter plans to start a version for men called Mr. Porter.
Excluding currency shifts, third-quarter revenue climbed 23 percent, Richemont said. The average estimate of six analysts was for a 17 percent increase. Excluding Net-a-Porter and currency swings, sales rose 19 percent.
“The rate of growth in Chinese demand for luxury goods should remain unabated,” Antoine Belge, an analyst at HSBC, said before the report. Luxury demand will probably increase 11 percent in 2011, the analyst estimated.
Wealthy Chinese consumers own 4.4 luxury watches on average and Cartier is the most preferred jewelry brand, according to the Hurun Wealth Report.
Thomas Chauvet, an analyst at Citigroup Inc., said he expects the consensus for full-year operating profit to rise 2 percent to 3 percent after the sales beat analysts’ estimates, and taking into account the comment on profit margin.
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