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Richemont H1 profit nosedives 51 percent to 540 mn euros

By Prachi Singh

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Business

In the six-month period, Richemont sales decreased by 13 percent to 5,086 million euros (5,645 million dollars) at actual exchange rates or by 12 percent at constant exchange rates. Excluding buy-backs, sales decreased by 8 percent in constant terms. Profit for the period decreased by 51 percent to 540 million euros (599 million dollars), while earnings per share decreased by 51 percent to 0.955 euros (1.06 dollars) on a diluted basis.

“Sales and profits for the six-month period ended 30 September 2016 were significantly below the prior year’s level, reflecting the difficult global environment, the exceptional inventory buy-backs and challenging comparative figures in the first half of the previous financial year. Richemont acted cautiously, protecting Group cash flow. Concerning watches, we will look to deal with overcapacity issues, adapting manufacturing structures to the level of demand,” said, Johann Rupert, Chairman of the company.

Richemont posts sales decline across regions

Gross profit decreased by 15 percent, representing 64 percent of sales and operating profit declined to 798 million euros (885 million dollars) with operating margin decreasing 16 percent.

Europe accounting for 31 percent of overall sales saw a decline in sales after a strong performance in the prior period. France, the company said, was particularly affected by a significantly lower level of tourist activity. The UK, however, enjoyed double digit growth rates in sales following the EU referendum.

Sales in the Asia Pacific region accounted for 35 percent of the Group total, with Hong Kong and mainland China being the two largest markets. The rate of sales decline has continued to soften to 8 percent compared to a 17 percent decrease in the prior period. The overall decline was partly offset by continuing growth in mainland China and positive retail, jewellery and accessories sales in the region.

The Americas experienced a 5 percent decline in sales partly due to a strong US dollar. The strength of the yen in Japan, that weighed on tourist spending in the country, and the very high comparative figures of 44 percent in the first half of last year contributed to a 22 percent decline in sales.

Sales in the Middle East and Africa declined by 10 percent, impacted by lower sales, mainly as a result of strong currencies.

Sales performance in retail channels

The contribution of retail sales, through the Maisons’ directly operated boutiques and online stores increased from 54 percent of Group sales, a year ago, to 58 percent given the relative strength of jewellery and accessories that are primarily sold through the company’s own boutiques. Retail was affected by trading in Europe and Japan while Asia Pacific and the Americas showed muted growth. Overall, sales in the 1, 154 boutiques declined by 5 percent.

The Group’s wholesale business, including sales to franchise partners, declined by 20 percent. The 13 percent decline in sales at the jewellery maisons – Cartier, Van Cleef & Arpels and Giampiero Bodino – is primarily attributable to watches, significantly impacted by the initiative to assist multi-brand retail partners worldwide. Resilient jewellery sales limited the decline.

The operating result was 31 percent lower than in the prior period, pressured by lower sales and the costs associated with the exceptional inventory buy-backs. This led to an operating margin of 27 percent. Excluding these costs, the operating margin would have been 32 percent.

Watches continued to suffer

The 13 percent decline in sales at Cartier, Van Cleef & Arpels and Giampiero Bodino – was primarily attributable to watches. The specialist watchmakers’ sales decreased by 17 percent. The lower demand for fine watches, together with the adverse impact of inventory buy-backs and a relative fixed cost base, combined to reduce operating results by 53 percent. Consequently, the operating margin for the period declined to 13 percent.

Montblanc, the Group’s fashion and accessories businesses and the Group’s watch component manufacturing activities. The reported operating losses include one-time charges of 67 million euros (74 million dollars) from the optimisation of certain retail and wholesale locations. Those one-time charges offset positive performances at Montblanc and Chloé.

Summary
Sales down 5,086 mn euros
Profit down 540 mn euros

Picture:Richemont

Richemont