Cartier Owner Richemont’s Profit Slumps on Weak China Demand

(Bloomberg) — Richemont’s profit slumped in the first half as the Swiss luxury group’s watchmaking division suffered from falling demand in China.

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The Cartier owner reported a 12% drop in operating profit to €2.2 billion ($2.37 billion) for the six months through September, below the €2.47 billion estimate of analysts. Sales were stable at constant exchange rates, slightly missing expectations.

Richemont, which also owns watchmaker Vacheron Constantin and jewelry house Van Cleef & Arpels, has joined luxury peers including LVMH and Kering SA in feeling the pinch from more cautious shoppers in China. Demand for luxury watches has also been softening more broadly following a pandemic-era boom.

Richemont’s jewelry division proved resilient, while the watchmakers “weighed heavy” on the results, Bernstein analyst Luca Solca said in a note to clients.

The shares fell as much as 4.2% in Swiss trading, trimming their year-to-date gain to around 6%. Thanks to the strength of its jewelry business, the stock has outperformed many luxury rivals in the past year. 

Sales growth in the US, Europe and Japan was offset by an 18% drop in the Asia Pacific region, which includes China, where sales fell 27%. Chairman Johann Rupert said Chinese demand for pricey goods “will take longer to recover,” and is particularly hitting its watch brands.

Sales of expensive timepieces dropped by 16% during the period, a steeper decline than analysts had expected. Jewelry sales met estimates, growing 4% at constant exchange rates, but the company said limited price increases weren’t enough to offset a rise in input costs and raw materials such as gold.

“There is definitely a confidence factor,” with China, Chief Executive Officer Nicolas Bos said on a call with reporters. The company said it didn’t know whether the decline in China demand had bottomed out or when it might improve.

“Confidence in China, I don’t know if it is at an all-time low, but it is rather low at the moment and that’s been the case for some time,” Bos said.

Reduced Capacity

The CEO said some of Richemont’s watch brands had reduced production capacity to align with demand but that the group had not utilized Switzerland’s “short time work” program to put workers on temporary furlough. Other Swiss brands have used the measure to preserve skilled-worker jobs amid the drop in demand.

“We’ve used the reduction of working time in the past and we’ll see how we use it in the future,” Bos said.

Richemont executives wouldn’t comment on the possibility that US President-elect Donald Trump might impose tariffs on some luxury goods.

Richemont, controlled by South African billionaire Rupert, named Bos — who boosted sales at Van Cleef — as CEO in May. The company also said the former head of Vacheron Constantin, Louis Ferla, would take over running Cartier, the French jewelry maker that is Richemont’s top-selling brand. 

The Swiss group in October said it agreed to sell its e-commerce business Yoox Net-A-Porter to Germany’s Mytheresa for a one-third equity stake in the luxury online retailer. The deal to offload the loss-making business came nearly a year after a plan to sell YNAP to Farfetch fell apart. 

(Updates with CEO comments beginning in paragraph eight.)

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