Geneva—Although Richemont reported today a 23% increase in its third quarter sales, the company cautioned that its fourth quarter would be tougher due to the strong Swiss Franc and higher prior year comparatives.
Richemont, which owns Cartier, Montblanc, Van Cleef & Arpels among others, reported that Asian demand for its luxury watches and jewelry helped the world’s second largest luxurygoods company boost third quarter sales to $2.8 billion.
Demand in China Helps Luxury Watch, Jewelry Sales
Revenue in the three months ended Dec. 31 beat the 2 billion-euro analysts’ average estimate.
While Europe is still the group’s biggest market, sales in Asia were up 57% from the same period last year.
“The Asia-Pacific region is the main driver–growth actually accelerated in local currency terms,” said Jon Cox, an analyst at Kepler Capital Markets. “The watchmakers are an obvious way to play China as well as a general resurgence of watch demand.”
While adding that any weakness in China will have an impact on Richemont stock, Cox said. “However, I would not bet against China.”
“The rate of growth in Chinese demand for luxury goods should remain unabated,” Antoine Belge, an analyst at HSBC, said. Luxury demand will probably increase 11% in 2011, Belge estimated.
Rising Swiss Franc A Concern
Nonetheless, Johann Rupert, Richemont’s chairman/ceo, warned that it would be “more challenging” for the company to meet expectations at the end of the financial year, with concerns over the effect of the strong Swiss franc.
A rising Swiss franc will cut into gross margin since much of company’s manufacturing is in Switzerland. Richemont also said it expects changes to product lines at one of its watchmaking companies to weigh on its gross margin, without specifying which brand. “The gross margin comment is an obvious one due the currency situation and the planned changes are connected to a relaunch of Baume & Mercier,” said Rene Weber, an analyst at Bank Vontobel in Zurich.
Thomas Chauvet, an analyst at Citigroup. said he expects the consensus for full-year operating profit to rise 2% to 3% after the sales beat analysts’ estimates, and taking into account the comment on profit margin.
Richemont bought full control last year of online fashion retailer Net-a-Porter.com, which sells high-end designer brands to women. Net-a-Porter plans to start a version for men called Mr. Porter.