Richemont suffers from consumer crisis in China
Published: Friday, Nov 8th 2024, 13:40
Updated At: Saturday, Nov 9th 2024, 00:59
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The poor consumer sentiment in China is weighing on the luxury goods business. The Geneva-based Richemont Group is also suffering as a result. The watch brands in particular are selling fewer timepieces, while the jewelry division continues to shine with high margins.
In the first half of the 2024/25 financial year from April to September, sales of the Richemont Group with brands such as Cartier, Piaget and IWC fell by 1 percent to 10.1 billion euros. Adjusted for currency effects, this resulted in zero growth, as reported on Friday.
At the same time, rising costs for raw materials or in production as well as unfavorable exchange rates put pressure on profitability. Operating profit (EBIT) fell by 17 percent to 2.2 billion euros and the margin by 4.1 percentage points to 21.9 percent. Excluding the activities of the online subsidiary YNAP, the half-year profit shrank from 2.2 billion to 1.7 billion.
At the beginning of October, Richemont was able to announce the sale of YNAP to the Munich-based platform Mytheresa after a long search and the failed Farfetch deal. The Geneva-based company is taking a stake in the buyer, but will also have to write off around 1.2 billion.
Recovery in China delayed
China, Hong Kong and Macau were the main drivers of the Richemont Maison's business. Sales there slumped by more than a quarter. "Consumer confidence in China has been very weak for some time and we don't know when demand will recover," said Nicolas Bos. The former CEO of Van Cleef & Arpels has been Group CEO since June.
CFO Burkhart Grund sees the crisis on the real estate market and the associated economic concerns as a major problem in China. Chinese people are not only visiting fewer restaurants or traveling less, they are also spending less money on shopping. "In the long term, the prospects for the Chinese luxury goods market are intact," Grund is convinced.
Business is much better in America, where sales increased by 11 percent. It is still unclear how the change of power in the USA will affect the activities of luxury goods companies. Is there a threat of high tariffs or will tax cuts for the wealthy benefit business? Grund did not want to comment on this, but expects growth in the upcoming US Christmas business.
The Middle East & Africa region (+11%) and Japan (+42%) were also on the rise in the first half of the year thanks to the tourism boom, even if the strong growth in the "Land of the Rising Sun" has recently slowed down. In Europe, Richemont grew by a stable 5%.
Jewelry remains popular
Jewelry remains the guarantor of success in the Richemont universe. Adjusted sales increased by 4 percent and the operating margin remained at a very high level of 32.9 percent. In contrast, watch sales fell by 16 percent and the margin halved to just under 10 percent.
As a result, watch brands have become cautious in their production. Production is not to be made for stock. Grund assured that short-time working has not yet been introduced at the Swiss sites. However, working hours have been reduced at several production sites.
The news is not well received on the stock market. The shares slumped by 6 percent by midday on Friday, dragging the Swatch Group shares (-6.6%) down with them. Analysts had hoped for a better performance, especially in view of the results.
©Keystone/SDA
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