Richemont Half Year Profit Jumps 88%

Geneva—While Richemont reported Friday that profit from its luxury brands such as Cartier, Mont Blanc and Van Cleef & Arpels, rose 88% in the first half, the luxurygoods conglomerate says currency fluctuations and tougher comparison in the future.

The company boasted a net profit increase to 646 million euros (about $882.4 million) as well as a 37% increase in sales to 3.26 billion. Last year, during the worse recession to hit luxury retail, Richemont had reported 344 million net profit for the same period 2009.

In a statement, Johann Rupert, executive chairman, said the “robust sales momentum that the group has seen for several months has continued through to the end of October,” with sales up 36% in the month.

The company said that travelers from outside Europe helped propel sales a 27% increase in sales in Europe, the company’s biggest market. “Fifty percent of the sales were still done by travelers, who are not resident in Western Europe, but the locals are also back for us,” said Gary Saage, chief financial officer.

Nonetheless, company warned its sales growth could slow in the face of a strengthening euro and Swiss franc and tougher comparisons.

As the euro increases in value, European travel becomes more expensive as do many of the company’s fine jewelry and watches which would be even more expensive in the important and fast growing Asia Pacific region. A strengthening Swiss franc would also affect Richemont because most of its watch production is in Switzerland.

A $2.6 Billion Cash Pile

“We benefited on sales in the first half from exchange rates,” Saage said Friday in a press conference. “We don’t know where rates are going, but expect a headwind in the second half.”

Still, Richemont is sitting pretty from a financial standpoint. Its shares have risen 50% this year and it has a cash pile of some $2.6 billion. That news, combined with recently rumors that Richemont had taken a 4.9% stake in Hermès, added fuel to speculation that Richemont could act as a foil against LVMH which recently announced acquired a 17.1% stake in Hermes—much to the chagrin of Hermes founding families who own nearly 75% of the company.

While Hermes executives denied Richemont had taken a stake, Saage declined to comment on any speculation linking Richemont with Hermès, saying that Richemont is focused on organic growth and expanding its retail network particularly in the Asia Pacific region.

Indeed the company plans to invest in more of its own retail stores to keep greater control of sales. At the same time, it will reduce the number of franchise and third-party retailers it works with like it did last year. Richemont opened 38 new stores, mostly in the Asia Pacific region, which helped increase sales there by some 50%.

“The retail channel continues to be more resilient. We will continue our investment there,” said Saage. “We will exercise greater control over the wholesale network. We will have fewer partners, but want more successful partners,” he said. “Cash is our fortress; it will finance our investment programs. It allows us to increase dividends in good times and bad, and it allows us to have a competitive advantage to seize opportunities.”

Speculation of a link between the luxurygoods companies arose earlier this month when Patrick Thomas, Hermès’ ceo, said his company has a “good relationship” with Richemont and they are “the sort of people who would work in a friendly way.”

Looking ahead to the crucial Christmas trading period, Saage said it was too early to foresee, but said he was “relaxed but vigilant.”

“It is too early to say what November and Christmas will look like. There is clearly a feel-good factor at the moment but that could disappear at any time.” Saage added.

 

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