During the period under review, net profit increased from 1.51 billion to 457 million. The stock closed down 6.6%.
Like other players in the luxury sector, the Geneva group Richemont posted a decline in performance in the first half of 2024/25 of its staggered financial year ending at the end of September. Both sales and profitability fell, weighed down by sluggish Chinese demand.
During the period under review, turnover contracted by 1% year-on-year to 10.08 billion euros (9.5 billion francs), the group announced on Friday in a press release. Current operating profit plunged 17% to 2.21 billion, while operating margin collapsed 410 basis points to 21.9%.
“The group’s sales were solid in most regions, which allowed us to compensate for weak demand in China which will take time to return to normal,” commented its president Johann Rupert.
The Americas and Japan actually posted respective growth of 10% and 32% in sales at real exchange rates. In the Asia-Pacific region, on the other hand, revenues collapsed by 19% – and even by 27% for the key markets of China, Hong Kong and Macau.
Consumer morale in China has never been so gloomy, “demand is very weak and we do not know when it will recover”, underlined the general director of Richemont, Nicolas Bos, during a press conference telephone. “It will undoubtedly take time,” he added, without giving any time indication, only referring to a “medium term” horizon.
Reduced production
This slowdown is hitting the watchmaking sector in particular. In this division, brands saw their sales plunge by 17% (-16% at constant exchange rates) to reach 1.66 billion. Operating profit collapsed by 59% to 160 million.
“We want to prevent stocks of our brands from swelling, which is why we have adapted watch production to the currently lower demand. And we will continue to do so as long as it is necessary,” said Mr. Bos. Working hours have thus been reduced at several sites, but not yet in Switzerland.
The jewelry division fared better, recording growth in its turnover of 2% (+4% at constant exchange rates) to 7.1 billion euros and an operating profit down 5% to 2.3 billion.
The “other” sector of activity, which notably includes fashion houses and accessories, grew by 4% at real and constant exchange rates.
Net income from continuing operations fell by 20% to 1.73 billion. The loss of 1.3 billion euros in respect of assets held for sale is the combination of the result of Yoox-net-a-porter (YNAP) for the first six months of the year and a value adjustment of 1.2 billion on YNAP’s net assets, without impact on cash flow. This stood at 6.1 billion at the end of September.
For the group as a whole, net profit fell from 1.51 billion to 457 million.
Confident analysts
These figures are below the expectations of analysts surveyed by the AWP agency who anticipated 1.88 billion for the result of continuing activities. Turnover was expected at 10.18 billion euros, operating profit at 2.33 billion for a related margin of 22.9%.
Richemont, however, did better than its two major competitors LVMH and Kering, thanks to growth of 4% in local currencies in the jewelry segment, noted Patrik Schwendimann of Zurich Cantonal Bank (ZKB). And apart from China, “other regions have experienced encouraging developments,” he added.
Same observation for Jean-Philippe Bertschy at Vontobel, who believes that “Richemont brands are gaining market share, including in the watch sector”. The company continues to identify opportunities and maintains its investment strategy, benefiting from strong cash flow, he continued.
As usual, Richemont is very reserved about its prospects. Its president only said he was “cautious in such a context of uncertainty”, but “confident in our ability to navigate current and future cycles while continuing to create value for shareholders. In the long term, “the prospects for luxury remain intact in China,” underlined financial director Burkhart Grund.
On the Swiss Stock Exchange, wary investors pocketed their gains. The stock closed down 6.6% to 119.30 francs, in an SMI index down 1%.
