Richemont has struck a cautious note on the lasting effect of pandemic lockdowns in China and showed little sign of progress in a long-awaited ecommerce deal, sending shares in the Swiss luxury conglomerate sharply lower on Friday.
The group, which owns upmarket jewellery and watch brands such as Cartier and Van Cleef & Arpels, on Friday reported strong sales growth for its financial year to March. But its operating profit of €1.44bn in the second half missed analysts’ forecasts as lockdowns dragged down revenue growth in China.
The delay in concluding a deal aimed at fixing problems at its lossmaking ecommerce operation Yoox Net-a-Porter disappointed investors, who have been waiting almost 18 months for Richemont to deliver on a plan to sell a stake in its online retail business to ecommerce player Farfetch, said Citi analyst Thomas Chauvet.
Richemont shares were down around 11 per cent in afternoon trade in Zurich.
Negotiations over Yoox Net-a-Porter have not been finalised, but Richemont chair Johann Rupert said on Friday that talks were going well.
Chauvet said the recent devaluation of ecommerce platforms and the decline in Farfetch’s share price could have added to the complexities of the transaction.
A deal would address longstanding concerns about Yoox Net-a-Porter’s profitability and loss of market share, which were exacerbated when activist investor Third Point took a stake in the luxury group last year.
Rupert said Richemont was preparing for a post-lockdown “temporary contraction” in China, which he did not expect to rebound quickly from strict citywide measures to quash Covid-19 infections.
Chinese consumers, who are the world’s biggest purchasers of luxury goods, had contributed to a rebound in the sector after the first wave of global lockdowns in 2020 eased. But since the start of this year, sales growth has slowed in China, with recent Covid-related lockdowns “negatively impacting an otherwise strong [final] quarter” at Richemont, the company said.
“The Chinese economy may suffer for longer than people think. You don’t have a six months loss in trading without economic impact,” Rupert told reporters on a call.
Richemont posted €3.4bn in annual operating profit, more than double that of a year earlier. The group’s sales rose 44 per cent at constant exchange rates, fuelled partly by strong demand across the US, said Rupert.
The geopolitical situation in Europe has injected uncertainty into Richemont’s forecast for the next six months. The suspension of commercial activities in Russia, following its invasion of Ukraine, cost the company a €168mn hit to its operating profit. It also had products seized in Russia, which Rupert equated to “a rounding error”.
The Swiss group reported a 49 per cent increase in sales at its flagship watchmakers, which include Cartier and Jaeger-LeCoultre, and said younger buyers in particular had been drawn to watches. This was positive for the sector, it said, as the watch industry has been under pressure from the rivalry posed by digital alternatives and smartphones.