By Andrea Figueras
Cartier owner Richemont said weaker consumer spending in China hurt sales, particularly at its watch brands, as a luxury downturn that is hurting most players in the industry rumbles on.
The Swiss luxury group said Friday that sales in the quarter through Sept. 30 came to 4.81 billion euros ($5.20 billion), a 1% on-year decline excluding currency movements, and below analysts' forecasts of 4.95 billion euros, according to a poll of estimates compiled by Visible Alpha.
The company's performance deteriorated compared with the previous quarter, when it reported sales growth of 1% at constant currency. For the six months through September, sales were flat on year when adjusted for foreign-exchange fluctuations.
Many luxury companies have been confronting a slowdown in demand. Richemont's coveted brands Cartier and Van Cleef & Arpels have helped the company fare better than other peers, as these labels cater to well-heeled buyers that continued to splurge on pricey goods while many other consumers felt the pinch of inflation.
Weakness in Chinese demand is hitting the group's specialist watchmakers business--home to Piaget and Vacheron Constantin among other brands--and will take longer to recover, Richemont Chairman Johann Rupert said.
Richemont's sales rose in all markets during its second quarter except in the Asia-Pacific region, where the company saw a 18% drop at constant currency, due to a decline in China. The company cited lower consumer spending and strong results for the same period last year.
Sales at the group's core jewelry business--which houses heavyweight brands Cartier and Van Cleef & Arpels and accounts for the bulk of group profits--came to 3.44 billion euros, up 4% at constant currency. However, the group's specialist watchmakers business reported a 19% decline in quarterly sales at constant exchange rates to 746 million euros.
The resilience of the Cartier and Van Cleef & Arpels was remarkable in a tough context, but pressures on the specialist watchmakers unit and higher costs led to a worse-than-expected performance, analysts at Jefferies said in a note.
The results weighed on Richemont's shares, which dropped 4.3% in European afternoon trading and fell as much as 6.4% earlier in the session.
Other names in the luxury sector also saw their shares plunge, as news on Beijing's stimulus package to boost the economy failed to convince investors. Rivals including Louis Vuitton owner LVMH and Birkin bag maker Hermes were down more than 3%. Shares in Gucci owner Kering, Swatch Group and Burberry Group tumbled more than 6%.
The luxury industry relied for years on spending by Chinese shoppers, but the country has now become a headache for several companies as consumers there hold back on high-end purchases like the luxury Swiss watches some of Richemont's brands make.
"We have a very strong negative wealth effect linked to the real-estate problem in China and I think that is still persistent and will take years to work through," Richemont Finance Chief Burkhart Grund said in an earnings call.
Recent weaker-than-expected results from French luxury conglomerate LVMH--considered a barometer of the sector--raised concerns about the sector, but a few companies, including Birkin bag maker Hermes, have bucked the downbeat trend.
Meanwhile, Richemont's net profit in the fiscal first half tumbled to 458 million euros from 1.51 billion euros, mainly due to the noncash write-down of the e-commerce business Yoox Net-A-Porter that the company recently agreed to sell, it said. Analysts had expected a net profit of 1.91 billion euros.
Earlier this year, the company agreed to sell YNAP to online luxury platform Mytheresa. The deal was struck nearly a year after an earlier attempt to divest the loss-making e-commerce business collapsed.
Write to Andrea Figueras at andrea.figueras@wsj.com
(END) Dow Jones Newswires
November 08, 2024 08:45 ET (13:45 GMT)
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