Geneva—Cie Financiere Richemont, the luxurygoods giant, reported today than its first half operating profit fell 0.7% due to slower sales in Asia and currency fluctuations, both of which have impacted sales at LVMH and Kering, too.
Interestingly, during its earnings report, the company made clear it would not be selling any of its brands, such as Lancel and Chloe which reportedly have been shopped around due to their drag on relatively strong sales in Richemont’s watch and jewelry business.
For the six months ending Sept. 30, the parent to Cartier, Montblanc, IWC etc. said operating profit dropped to 1.37 billion euros (about $1.8 billion), missing 1.4 billion that analysts’ forecast. Total sales increased 4.3% to 5.32 billion euros.
“The subdued overall environment and in particular our continued investments for the long term call for increased caution,” Chairman Yves-Andre Istel said in the statement. He added that the company doesn’t plan to sell any brands in the foreseeable future.
To Invest, Not Divest
In the Asia-Pacific region, which accounted for about 40% of Richemont’s sales in 2012, sales slowed to 4% excluding currency swings. During the last fiscal year, growth in Asia-Pacific rose 5% and 46% in the prior 12 months.
Richemont’s core jewelry and watch businesses, which accounts for 80% of sales, generated higher operating results in the half-year to September, boasting operating margins of 36.9% and 31.7% respectively.
Chief Financial Officer Gary Saage told analysts on a conference call that Richemont can get better returns by investing in its current brands rather than disposing underperforming assets, the company decided after finishing a portfolio review.
Speculation that Richemont planned to dispose of some of its fashion and accessories brands began in May when Johann Rupert, the chairman who is now on leave, said Richemont should have been quicker to get rid of bad investments.
Saage denied previous rumors that Richemont planned to sell off Net-a Porter, Montblanc, Chloe etc. although he admitted strategic options had been considered for Lancel, the French leathergoods company.
However, Richemont purportedly couldn’t get a decent enough price for Lancel, which has been valued at 200 million euros to 500 million euros.
Now Richemont plans to invest and turnaround any lagging businesses, including Dunhill and Montblanc, both of which had double digit losses.
Richemont can afford to invest in its slower brands. According to today’s report, the luxurygoods company’s net cash increased 27% as of Sept. 30 compared with the same date a year earlier. Operating profit of a unit that includes fashion, accessories, Net-a-Porter and watch component production almost tripled to 35 million euros as sales rose 6% to 712 million euros.
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