Research archive for CFR

Richemont stock soared 8 percent on Friday, the last three years however has seen the stock slip nearly 9 percent, notwithstanding the excellent day Friday. There were six month results and at face value they hardly looked like anything to get excited about. Perhaps they were less bad, perhaps we can put it down to the announcment that there are likely to be significant changes to the management structure of the business. Even at a global level there are no real peers in the luxury goods industry to compare Richemont to. LVMH has booze and handbags aplenty, Kering owns Puma and Volcom, so it is hardly comparable. Prada. Nope. Tiffany & Co., maybe it is close enough. The quality of the brands of Richemont are at a "higher" level. Some of their Maisons (houses) are timeless themselves. See a recent deep dive - Richemont review - balance sheet and brands for the future.

I did a deep dive into Richemont yesterday. There is no doubt that the stock has been more than a little disappointing. Luxury goods across the globe have looked sloppy as fewer vacations to Europe coincide with lower purchases by foreigners, equally however since the current Chinese leadership has cut down on corruption and the culture of "gifting", there has been a slowdown in sales. Richemont as it exists nowadays is less than 30 years old. There was the tobacco element for more than half the life of the company, the cash flows were used to fund some of the acquisitions. They own some of the most prestigious and iconic luxury brands on the planet, Cartier and Van Cleef & Arpels, as well as watch brands like Vacheron Constantin, Piaget, Panerai, Baume & Mercier, amongst others. They own Chloe and Lancel, Dunhill, Mont Blanc and Peter Millar, Purdey and Shanghai Tang, in a division of "other" that contributes only 16 percent of overall sales.

There is very little that Richemont can do about a crackdown on graft and gifting in China, there is even less that the company can do about terrorism and people delaying travel to Europe. On those said trips, often people buy the expensive products that they produce. The company will continue to produce their quality products, which are timeless in themselves. In fact, as we often say around these parts, the longer they own the timeless and obviously quality brands, the more valuable the name and brand becomes. I look at LV bags and can't see the attraction, mind you, what the hell do I know about bags! The brands are what they are, old, quality and pretty much timeless.

On Friday morning we had the full year numbers from Richemont. There were many moving parts to the results but on the whole the numbers were disappointing, the stock dropped around 5%. Here they are - Richemont audited consolidated results for the year ended 31 March 2016. (Investor relations and management do a great job in making these documents easy to read/ use)

Richemont fell short in a sales update that may have been somewhat shy of expectations, for the first time however it was evident that the terrorist attacks in Paris has been a part of the softer sales. The attacks of course were just over two months ago, 13 November. Those attacks certainly shook all and sundry, Paris is of course one of the most visited cities in the world. If I am not mistaken, from my reading, the Notre Dame de Paris is the most visited free place in the world, you don't have to pay to get into a church. That church took nearly 100 years to build, "things" were a little slow back then.

Richemont have released six month results to end September, sales up 15 percent in Euro terms, 3 percent increase at constant exchange rates to 5.821 billion Euros. Such is the weakness of the Euro relative to their selling territories. Gross profits increased 13 percent to 3.786 billion Euros. Operating margins were described by the company as robust, they did sink 200 basis points to 24 percent. Yet, after all of that, profits managed to increase 22 percent a share, equally earnings per share increased by 22 percent to 1.949 Euros.

Richemont have announced this morning that the merger between their Net-a-Porter and Italian online luxury company, YOOX has been completed. That took more than six months, if you need the refresher of how the investment is going to work, cast your mind back to late March and when we wrote about it: Net-A-Porter merges with YOOX. What Richemont (and by extension, you the shareholder) gets is 65,599,597 Yoox Net-a-porter shares in the bigger company, one that holds both platforms now. That is half of the business.

Richemont have released a five month trading update this morning. Whilst the currency swings were negative on the way down (for the Euro), they have been equally positive on the way up. At real exchange rates sales only increased 4 percent, in reported currency (Euros) sales increased 16 percent. Europe itself has made a massive comeback, confirming once again that the European recovery has been in full swing here.

Johann Rupert, chairman and controlling shareholder of Richemont, wants to team up with his rivals. What gives? And all this is not long after Richemont had injected their Net-a-Porter business in return for an equity stake in Yoox. They have equal equity for now, they do not have control of the business. The Bloomberg story is as follows: Richemont Invites LVMH to Join Website to Compete With Amazon. The plan is to actually use the Yoox Net-a-porter platform, by getting LVMH and Kering SA to have equity in the business, Yoox that is. Johann Rupert was talking at the FT Business of Luxury Summit in the picturesque town of Monaco.

Richemont results have hit the screen this morning. Another "Swiss" company, this one of course has a primary listing in Zurich. Something that I guess could happen with Mediclinic in due course. The South African listed entity is the GDR, a Global Depositary receipt, for every ten shares that you own here in South Africa, it is equivalent to 1 share of the listed entity in Switzerland.

A couple more stories about NET-A-PORTER, this time the Yoox story, the NYT is following that -> Yoox Group in Talks With Luxury Online Seller Net-a-Porter. As you can see, when Richemont purchased the business and valued the whole thing at 520 million Dollars in 2010, the company was not altogether sure where all of this was going.

Net-a-Porter rumours have been swirling around over the last few days, mostly as a result of the Natalie Massenet (the founder) finalising her 100 million Euro payout with Richemont. Not really, mostly due to the fact that Net-a-Porter could be for sale. Huh? Natalie Massenet founded the company, Richemont initially bought 93 percent 5 years ago -> Richemont acquires shares in NET-A-PORTER. 18 odd months ago, Richemont stated that: Net-A-Porter group (was) not for sale. Seems that Amazon might have expressed interest according to Forbes (although Amazon denied this), this morning there is news that Italian listed business Yoox was ready to suggest an around 1.3 billion Pounds tie up. That is equal to their market cap, I guess this would be a real merger of equals. Yoox is up 8 percent, I guess this would be good for them.

Not so pleasing was the Richemont trading update, that is out this morning. We expected a weak update on the basis that their Hong Kong stores, which represent a large portion of sales in the greater Chinese reporting area, were affected by the protests. Download the trading update: TRADING UPDATE FOR THE THIRD QUARTER ENDED 31 DECEMBER 2014. Asia pacific was really weak, and that has been the growth engine. There were strong bounce backs in Europe. Here is the table below for the nine months, the second table which would to some extent neutralise the impact of the Umbrella Revolution is the more important one for the 9 months:

Do you remember from the mid nineties (that is now twenty years ago) the Deep Blue Something song, And I said, What about breakfast at Tiffany's? I actually went to the Tiffany's HQ, quite impressive really, the best part is that this shop is close to the NikeTown store, which is more awesome for me. However, back to Tiffany's, the "soft luxury" category took a hit yesterday after the company that sells jewellery and packages them in beautiful little iconic blue boxes guided forecasts lower for the full year. Holiday weakness, sales around 1 percent lower across the board for the last two months of last year, when compared to the comparable period in 2013. Sigh, the WSJ cites lower banker bonuses and says that the flagship Manhattan store on several levels accounts for 8 percent of global sales. That is around 320 million Dollars from that one store, quite astonishing really, less than a million bucks a day sounds less impressive. The upshot of it all for us here was a declining sector globally, Richemont after being up for the day went lower, it did end higher in Switzerland. Their (Richemont) sales update is the 15th of January, they themselves have had a lot to contend with, including a weaker Euro and the Hong Kong protests!

We saw this announcement, we had not had a chance to write on it until now. The news that Richemont were considering spinning off Net-a-porter during the course of 2015. Richemont owns two thirds of the business, Natalie Massenet is the founder of the business. The Bloomberg story: Net-a-Porter's Owner Said to Mull 2015 IPO of Retailer, perhaps someone is just kite flying a little here. I guess all we need to do is to wait and see if there is any official announcement from the business. As an aside, you can buy their expensive items on their website, delivered here to South Africa, it costs a fortune to get it here 22.5 Pound Sterling and then of course the courier would call you to let you know of the import duty.