Johann Rupert’s Richemont plummets

Richemont’s share price declined 9.5% on Monday following a worse-than-expected trading update, signalling that demand in the United States and China is softening.

The luxury goods company’s results for the quarter ended June 2023 showed a 19% revenue increase, keeping the effect of foreign currency constant.

The group reported EUR5.32 billion in total revenue compared to EUR4.65 billion in 2022, with growth largely attributed to strong sales in the Asia Pacific region.

The Americas make up a significant portion of Richemont’s total sales and have seen strong growth in the past.

However, this region has now seen a 2% contraction in growth when looking at continued operations.

It is significantly more, around 19%, when including the impact of the YOOX Net-A-Porter (YNAP), which has been reclassified as an asset held for sale.

Richemont grew its revenue in its continued operations by 19%, but its absolute level of revenue, including the impact of YNAP, only grew by 1% compared to the 2022 period.

Richemont experienced significant decreases in absolute revenue levels in Europe and America after the YNAP reclassification, two of its largest revenue-generating regions.

The luxury goods industry has been counting on a rebound in China as that country’s reopening would make up for weakness in the US market.

Now Richemont is contending with the prospect that its two main growth motors are weakening.

With the removal of YNAP’s revenue from Richemont’s statements, it would trade at a price-to-sales ratio of over four times sales at the pre-results share price.

Richemont’s average price-to-sales ratio over the past five years was 3.4 times sales. The recent share price decline brought it to 3.6 times sales, much closer to the 5-year average.