Johann Rupert’s Richemont jumps 10% on strong jewellery demand

Richemont reported higher sales during the holiday shopping season as stronger-than-expected demand for its jewellery in China and the US countered a broader slowdown in luxury growth. The stock surged.

The Cartier owner said sales rose 8% at constant currencies during the three months through December, led by China and the Americas and exceeding analysts’ estimates.

Richemont’s performance, on the heels of a profit warning last week from Burberry, shows the diverging fortunes of luxury houses at a time when industry growth is slowing.

Watches of Switzerland Group, the biggest seller of Rolex watches in the UK, slashed its sales target Thursday, citing weak demand in Britain and shifting habits among well-heeled consumers.

“Richemont’s iconic product lines and strong retail presence give it a clear competitive advantage to navigate these uncertain times,” wrote Vontobel analyst Jean-Philippe Bertschy in a note.

He described the quarter as “reassuring” in a challenging period for luxury. 

Shares of Richemont rose as much as 9.6%, the most in more than a year, while Watches of Switzerland plunged by almost a third, the steepest since the company’s 2019 initial public offering.

Sales from Richemont’s jewellery houses, which also include Van Cleef & Arpels and Buccellati, surpassed estimates in the quarter, even as turnover at its watches division lagged behind expectations. 

What Bloomberg Intelligence Says:

Richemont’s strength in jewelry, sales up 12% at constant currency vs. 8% for the group, brings relief to a mixed fiscal 3Q, and should soothe sentiment as it’s 71% of sales and the majority of profit. 

— Deborah Aitken, BI luxury-goods analyst

Chief Financial Officer Burkhart Grund said on a conference call that Richemont management agreed with expectations that the first half of 2024 would be more challenging than the second.

“For the time being, it looks like a soft landing,” he said. “Once the interest rate lowering cycle in Europe and the US gets underway, we should probably see more positive news.”

For now, demand for luxury watches has been weakening after an unprecedented boom during the pandemic that prompted many producers to significantly hike prices.

Watches of Switzerland said holiday sales were hurt by challenging macroeconomic conditions that it expects to persist. The company cut its targets for full-year revenue and organic growth.

Chief Executive Officer Brian Duffy said, “the festive period was particularly volatile this year for the luxury sector, with consumers allocating spend to other categories such as fashion, beauty, hospitality and travel.”

Richemont’s Grund, meantime, said the company’s online luxury platform Yoox-Net-a-Porter, which saw sales fall 11% during the quarter and first nine months of its fiscal year, was still for sale. It had already received “unsolicited” interest from possible investors, he added.

“We are in the process of identifying a future majority shareholder,” he said.

During the quarter, a deal to sell a majority stake in the loss-making platform in exchange for shares in Farfetch Ltd. was cancelled after the luxury portal was sold in a rescue deal to a South Korean e-commerce company.

The company said online retail sales fell 5% during the quarter.