Richemont's share price surges following strong sales in volatile global environment

The share price of luxury goods group Compagnie Financiere Richemont surged 4.8% on the JSE on Friday after it reported strong global sales in the six months to September 30, with sales accelerating in the second quarter.

The group interim results, which includes brands such as Cartier, Van Cleef & Arpels, and Montblanc, showed sales up by 10% over the six months at €10.6 billion, while the acceleration in the second three months came to 14%. The share price traded at R3670.27 on the JSE Friday afternoon, a good 50% higher than R2446.00 a year ago.

“Richemont delivered a solid performance against a persistently complex macroeconomic and geopolitical backdrop,” said Johann Rupert, chairman and founder of the group.

The growth in operating profit to €2.4bn was underpinned by a strong sales contribution and cost discipline, mitigating the negative impact of macroeconomic headwinds on gross margins.

Richemont’s directors said the robust financial position was maintained due to a persistent focus on nurturing the group’s Maisons’ long-term growth prospects. A Maison refers to a brand or “house” that embodies tradition, craftsmanship, and a distinct identity within a larger conglomerate.

Rupert said that in recent months, the group continued to be stress tested, confronted by an unprecedented combination of external macroeconomic headwinds, including material currency movements, the rising price of gold, and the initial impact of additional US duties.

“In order to reflect this high-cost environment, we introduced balanced and targeted price increases, while aiming to preserve value for our clients over the long term. Looking ahead, it is evident we will need to continue navigating through uncertain times, given that recovery paths remain unsteady, particularly in China, and that external pressures show no sign of abating,” Rupert added.

All regions where the group operates experienced double-digit growth in the second quarter at constant exchange rates, led by local demand, particularly in Europe, the Americas, and the Middle East regions.

In the second quarter specifically, China, Hong Kong, and Macau combined, along with Japan, returned to growth, while other regions maintained their solid sales momentum, Rupert stated.

Operating profit was up by 7%, or by 24% at constant exchange rates, resulting in a 22.2% operating margin. Strong demand fueled the Jewellery Maisons’ growth, with sales up 9% at actual exchange rates, 14% at constant exchange rates, and by 17% in the second quarter.

There was also a slower rate of decline at Specialist Watchmakers, with sales down by 6% at actual exchange rates, down by 2% at constant exchange rates, but up 3% in the second quarter. Broadly stable sales in the “Other” business area were down by 1% at actual exchange rates, up by 2% at constant exchange rates, and up by 6% in the second quarter.

Profit for the period increased to €1.8bn compared to €0.5bn in the prior-year period, which included a €1.2bn non-cash write-down linked to the sale of YNAP. The net cash stood at €6.5bn, with €1.9bn cash flow generated from operating activities and after €0.6bn cash transferred upon closing of the sale of YNAP to LuxExperience.

Sales grew across all distribution channels in the first half, with direct-to-client sales representing 76% of group sales, in line with the prior-year period.

The Jewellery Maisons implemented measured price increases while managing costs efficiently against a backdrop of significant currency movements, higher raw material costs, and, to a lesser extent, the initial effect from additional US duties.

Supported by strong top-line momentum, this allowed them to deliver a €2.5bn operating result in the first half, up by 9% at actual exchange rates and by 21% at constant exchange rates.

The Specialist Watchmakers saw a slower rate of first-half decline, with encouraging signs in the second quarter, but the context remained volatile, notably with the latest US duties affecting Swiss-made products since August.

Regional performance showed contrasting trends. The Americas were up by double digits in both quarters, while sales in Asia Pacific declined due to continued soft demand in China, despite a noticeable improvement in the second quarter.

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