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Leibish & Co

Wednesday, September 7, 2011

Richemont Reports Widespread Sales Growth Led by Jewelry Sales but Cautions on Future Profits

Cie. Financiere Richemont SA said Wednesday that sales for the five-month period ended August 31 increased 29 percent year-over-year, led by strong growth for all of its brands throughout all regions. At constant exchange rates, sales increased by 35 percent.

However, the company cautions that the rising Swiss franc and uncertain economic conditions make the remainder of the year difficult to predict. In a move to stop the surge of the Swiss franc against other currencies, the Swiss National Bank capped the franc’s rate against the euro at an exchange rate below 1.20 francs to help the country’s exports. The Swiss currency dropped more than 8 percent against the euro Tuesday. It is unclear whether the SNB’s decision played into Richemont’s outlook.

On a region-by-region basis, sales growth in Europe, the company’s largest market, was robust (up 21 percent), reflecting purchases made by local clients and tourists, the luxury goods company said. The Asia-Pacific region continues to lead the way with a 46 percent growth in sales for the period. This stems from sustained consumer confidence in that region and increased investment by the company in its brands (known as Maisons) and distribution networks. Sales growth in the Americas increased a notable 26 percent, year-over-year. Sales in Japan increased 7 percent, despite the aftermath of the natural disasters which struck that country in March.

Retail sales grew 37 percent due to the expansion of the Geneva-based company’s retail networks, particularly in the Asia-Pacific region, and strong growth at the e-commerce site, Net-A-Porter.

The company’s wholesale business increased 22 percent during the five-month period.
All brands enjoyed solid growth. Jewelry brands (Cartier and Van Cleef & Arpels) led the way with 34 percent growth in sales for the period. Sales at watch brands (Jaeger-LeCoultre, Piaget, IWC, Baume & Mercier, Vacheron Constantin, Officine Panerai, A. Lange & Söhne and Roger Dubuis) grew 28 percent for the period. Montblanc sales increased 10 percent. Sales in a category listed as “Other” (Alfred Dunhill, Chloé, Lancel and Net-A-Porter.Com as well as other smaller brands and watch component manufacturing activities for third parties) increased 24 percent.

The company is also in a joint venture with Ralph Lauren’s watch and jewelry business.

Richemont’s net cash position for the period is 2.6 billion euros ($3.6 billion).

Richemont expects its sales and operating profit for the first six months of this year to be significantly higher than the comparative period.

“Based on the strengthening of the Swiss Franc between March 2011 and today, the Group will incur a significant translation loss on its cash balances,” the company said in a statement. Further, the accounting gain recognized in the comparative period relating to the acquisition of Net-A-Porter of € 101 million will not re-occur. Accordingly, Richemont expects attributable profit to be broadly in line with the prior year despite a significantly higher operating profit.”

Johann Rupert, Richemont executive chairman and Group CEO, added: “The rest of the financial year is difficult to predict. The problems of fiscal deficits generally and Euro zone difficulties in particular are likely to act as a drag on business prospects for companies in the period ahead, especially if the growth markets are affected. To hope for a continuation of the current good trading levels in such circumstances may be over-optimistic. In addition, we must keep in mind the demanding comparative figures against which sales in the coming six months will be measured.

“Moreover, the impact of the Swiss franc’s appreciation against the euro and other major currencies obviously poses a challenge for all Swiss exporters. For Richemont, with a significant production base, our headquarters and many of our Maisons located in Switzerland, the stronger Swiss franc will continue to be negative for our cost of sales and operating expenses, maintaining negative pressure on our margins.”