By Cristina Roca
Compagnie Financiere Richemont SA reported results for the first half ended Sept. 30 on Friday. Here's what we watched:
SALES REVIEW: First-half sales rose 9% to 7.4 billion euros ($8.19 billion), but fell slightly short of expectations of EUR7.49 billion, according to a consensus estimate by four analysts provided by FactSet.
NET PROFIT REVIEW: Net profit was EUR869 million, missing expectations of EUR971 million, according to a consensus estimate by four analysts provided by FactSet.
WHAT WE WATCHED:
-HONG KONG BITES: Sales in Hong Kong, an important luxury shopping hub, were down in 1Q but deteriorated dramatically in 2Q, company management said during a conference call, although they didn't quantify the extent of the shortfall. Richemont said the "double-digit" sales decline in Hong Kong over 1H was offset by strong growth elsewhere in the Asia-Pacific region. However, 2Q sales growth in the region was substantially weaker than in 1Q, Citi analysts noted.
-JEWELRY LOSES A LITTLE SHINE: Jewelry, one of Richemont's fastest-growing divisions and the largest by revenue, posted 5% organic growth for 1H. But Citi bank says momentum slowed in 2Q, estimating that growth was was 3%, down from 7% in 1Q. This may have worried investors at a time when the industry is buzzing about a possible takeover of Tiffany by luxury titan LVMH Moet Hennessy Louis Vuitton, likely increasing competition in the jewelry space.
-TRANSFORMATION COMES AT A COST: The main disappointment from Friday's release came from missed operating profit expectations, analysts at RBC said. Operating losses from the YNAP luxury online retailer widened more than analysts had expected, dragging the group's overall result, the bank said. Richemont management said they continue to implement measures to pave the business' future success. Friday's release shows the extent of the short-term financial pain required in order to longer-term gains, RBC said. The company also increased investment in its jewelry brands in order to strengthen them, it said.
Write to Cristina Roca at firstname.lastname@example.org