Tue, 17 Sep 2019

Richemont reported a surprise drop in revenue from its watch business, with protests in Hong Kong cutting sales in a key luxury market for the owner of Cartier.

The watch unit's sales slid 2% excluding currency shifts in the three months through June, the Geneva-based company said Thursday. The stock fell as much as 3.9%, trimming its gain this year to 33%.

The report comes after rivals Burberry Group and Swatch Group announced better-than-expected results, raising the bar for the sector. Richemont's watch brands have suffered from excess inventory, and the company has been buying back unsold products from the market since 2016.

Richemont echoed Swatch in saying that protests in Hong Kong, the top export market for Swiss watches, weighed on sales due to store closures and lower tourist arrivals.

"It's a sales miss and a sales miss is never good news," said Eleanor Taylor Jolidon, who manages $2.5bn (R35bn) at Union Bancaire Privee in Geneva.

The company said first-quarter watch sales were more subdued because it's introducing most of its new timepieces this year now in the second quarter. It's also been trimming its distribution network in an attempt to make its products scarcer, leading to a 2% drop in wholesale watch revenue.

The drop in watch sales is also due to measures to reduce the gray market and limited pick-up in demand for the company's biggest brands like IWC, Vacheron Constantin and Panerai, according to Morgan Stanley analyst Edouard Aubin.

Swatch joins burgers and coffee with drive-through for watches

Switzerland's exports of timepieces dropped 11% in June, the Federation of the Swiss Watch Industry said Thursday. Shipments to Hong Kong declined 27% in June and dropped 6.6% in the first half. Even before the protests started last month, that market had been weakening as China tries to boost luxury consumption on the mainland.

Shifting sales to China from Hong Kong, where margins are typically higher due to lower taxes, is negative for luxury-good makers.

Richemont had net cash of €2.4bn (about R38bn) at the end of the quarter.

"The stock had a strong run so we would not be surprised with some profit-taking today," said Rogerio Fujimori, an analyst at RBC Capital Markets.

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