Richemont Signals Worst Is Over for High-End Watch Market

LAGOS (Capital Markets in Africa) – The worst is over in the high-end Swiss watch market, if a 45 percent gain in profit at luxury-goods maker Richemont is any indication.

The surge in first-half earnings came as retail inventories return to normal following Richmond’s repurchase of excess stock last year, the Geneva-based owner of Cartier and Montblanc said Tuesday in an unscheduled announcement. The shares approached a two-year high in Zurich, and their 33 percent year-to-date gain has helped make Chairman Johann Rupert about $1.8 billion richer.

The surprise profit announcement illustrates how much the market has changed since last year, when the Swiss company was buying unsold watches to reduce a glut on the market. Last month, Swatch Group AG Chief Executive Officer Nick Hayek said sales growth would accelerate through the rest of the year as demand for timepieces improves in markets from China to Switzerland and France.

Richemont “seems to have benefited from a massive comeback of Chinese luxury consumers,” wrote Christian Weiz, an analyst at Baader-Helvea.

Operating profit rose about 45 percent in the six months through September. Analysts expected 34 percent, according to the median of five estimates compiled by Bloomberg.  Sales rose 12 percent at constant currencies, the fastest rate for first-half sales growth in five years.

Repurchasing inventory amid a multiyear slump in Swiss watch exports prompted in part by curbs on lavish gift-giving in China had reduced Richmond’s sales by almost 300 million euros ($353 million) in the 12 months through March.

Roger Dubuis
A rebound in higher-end mechanical Swiss watches has accelerated even as smartwatches erode demand for low-end quartz timepieces, according to Swiss watch federation data for August. Most of Richmond’s dozen watch brands can command prices into at least six figures. They include Roger Dubuis, whose founder, a former Patek Philippe designer, died last week.

The inventory overhang has been moving from Hong Kong, the biggest destination for Swiss watch exports, to the U.S., Guillaume Gauville, an analyst at Credit Suisse, wrote in a report Tuesday. Discounting among unofficial retailers in the U.S. is affecting Swatch more than Richemont, he said.

Makers of low-end watches, especially non-Swiss ones, have suffered recently as smartwatches such as the Apple Watch suck demand from the market. Shares of Fossil Group Inc., a Dallas-based maker of less expensive fashion timepieces, have lost about two-thirds of their value this year.

Richemont last year began a widespread overhaul in which Rupert abolished the group CEO position. The company also shuffled the heads of several brands, including Piaget and Vacheron Constantin, and Rupert has said Richemont may announce further changes next month.

The company, whose full name is Cie. Financiere Richemont SA, is scheduled to report full first-half results on Nov. 10.

Source: Bloomberg Business News