Richemont Posts 44% Drop in Full-Year Profit

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Geneva–Luxurygoods group Richemont SA says it continues to face “plenty of challenges” after posting a 44% drop in full-year profit, despite signs of an uptick in demand in the last two months.

Sales in April were 24% higher than the same month last year, the company said, but added that it remains very cautious.

“What is going on in the western world is not very encouraging, look at Europe and what may happen in the U.S. as well,” deputy ceo Richard Lepeu told analysts on a conference call last week. “The only piece of good news is Asia-Pacific that continues to boom.”

Belt Tightening

Cost-cutting measures such as boutique closures, a reduction in the company’s distribution network in markets like the United States, and steps to control inventories all weighed on the bottom line in the year ending March 31.

The Swiss luxurygoods maker, which owns brands such as Cartier, Montblanc, Van Cleef & Arpels, is the world’s second largest behind LVMH. It posted $739 million in annual profit from continuing operations, down 18% hit by currency losses.

Richemont’s 7% sales growth in the six-month period trailed rival Swatch Group AG, whose ceo said last week that revenue rose between 33% and 58% from January to March. The Swiss franc strengthened 6.3% against the euro during Richemont’s second half, increasing production costs at the company’s watch factories just as it reduced output to avoid inventory build-ups.

 ‘Cash Is a Fortress’

Still, there was some encouraging news for investors, however. Richemont announced a new share buyback program.

The company more than doubled its net cash position to $2.35 billion at the end of March and its share buyback program amounted to around $469 million, leaving the group enough ammunition for additional acquisitions.

“Having cash is more important than ever in these times. It gives you the opportunity to have a long time view,” Lepeu said. “It also allows us to seize opportunities: Cash is a fortress and we intend to keep it that way and wait for opportunities.”

In April, Richemont took control of luxurygoods website Net-a-Porter for $530 million. Speculation has increased that it may take a stake in Prada or buy additional brands.