May 15, 2020
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Richemont hit by Covid-19, but online shines and China speeds back to normal

May 15, 2020

Richemont mixed good news with bad on Friday as it delivered its full-year results, with the world's second largest luxury group reporting resurgent demand in China on the reopening of its 462 boutiques, but also a profits plunge in the 12 months to March 31.


And the company, which owns Chloé, Dunhill, Cartier, Yoox Net-A-Porter (YNAP) and more, expects plenty of headwinds in the months ahead on the back of the coronavirus pandemic. The impact of the pandemic was already seen in the year to the end of March as net profit fell 67% to €931 million, well below the €1.29 billion analysts had predicted, even though sales rose 2% to €14.238 billion. While part of the profits fall was accounted for by a non-recurring gain it had made in the previous year, with that taken out of the equation, the fall would still have been 34%. Operating profit fell 22% to €1.5 billion.

Growth in sales during the year was driven by the online operations that the group now owns as well as its Jewellery Maisons, while good performances in the Americas, Europe and Japan "more than offset" a decline in Asia-Pacific.

The impact of the coronavirus becomes clearer when looking at Q4 alone because sales during that three-month period fell 18%, with Asia-Pacific down 36%, Greater China down 67% and Europe down 9%. However, the company managed a 9% increase in the Americas.

Describing the pandemic as a hopefully "once-in-a-lifetime event", the company said that the luxury goods industry is in a privileged position and that ‘hard luxury’ products “are not transient but rather embody centuries of heritage and craft skills. Our Maisons Will survive these difficult times, supported by the strength of Richemont’s balance sheet”.

But the group clearly has little visibility over just how the next few months will play out, although as mentioned, it said China has apparently returned to business as usual "remarkably quickly”.

This is encouraging, as is its performance online, an area in which the company has invested heavily in recent years. It saw a "notable acceleration" of online sales in Q4 that partly mitigated a halt in tourism and store closures. Online accounted for 19% of group sales by year-end, compared to 16% a year earlier, reflecting the company’s investment in the internet as much as the pandemic's effects.

And aside from giant e-tail operations like YNAP, it said its joint venture with Alibaba in China and initial online ‘Pavilions’ “are introducing Cartier and the other Maisons to a new generation of shoppers. Having started to shop online, these internet shoppers also tend to become good customers in our boutiques. In times when tourist traffic is impacted by concerns over the virus, internet shopping has proven to be a key avenue and will remain key to the growth of our business”.


Despite the recent pick-up in China, the company believes that other economies will find it difficult to replicate the reasonably fast return to normality being seen there. That must be hugely disappointing because Richemont said that until the outbreak of Covid-19 in January, it was seeing a good sales performance, even bearing in mind protests in Hong Kong and France.

The unexpected global catastrophe in Q4 dented what would have been an otherwise-strong year. Despite that challenging fourth quarter, the Jewellery Maisons grew modestly for the year, driven by positive retail sales and strong online sales. At actual exchange rates, sales grew by 2% to €7.217 billion, but operating profits fell 7% to €2.077 billion.

And its Specialist watchmakers saw sales falling only 4% to €2.859 billion, although profits were down 20% to €304 million, the decline linked to the Hong Kong protests as well as the pandemic.

Sales at the division the company calls Online Distributors (YNAP and Watchfinder) rose 15% to €2.427 billion, although the operating loss widened by 143% to €241 million. This was due to a “highly competitive pricing environment at YNAP, international expansion investments at Watchfinder and increased investments in IT, mostly linked to Mr Porter’s and more recently Net-A-Porter’s global technology and logistics platform migration”. Q4 was also ht by the temporary closures of distribution centres due to Covid-19. 

And the group’s ‘Other’ operating division, the one that includes its fashion and accessories business, plus watch component manufacturing and real estate, saw sales down 5% to €1.788 million.Its growth in the Americas was offset by declines in other regions, particularly in Asia Pacific due to the pandemic. Retail sales were lower, although Dunhill and Montblanc "showed resilience" with increases in most regions. 

Online sales grew strongly, driven by Montblanc and Peter Millar, and now account for 9% of total sales compared to 5% a year ago. In the year under review, operating losses of €141 million included a €45 million charge in relation to impairment of tangible assets at Alaïa, Dunhill and Purdey. No mention was made of Chloé.

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