Richemont Q2 - Struggling in China

Last week, Richemont reported a 1% decline in six-month revenue, due to weak watch sales and slumping demand in China. Sales in the Asia-Pacific region, including Hong Kong and Macau, dropped 27%.

On the bright side, sales in Japan jumped 42%, the Americas rose 11% (outpacing LVMH's 1% growth in the region), and Europe was up 4%. Despite these positives, operating profits fell 17% to EUR2.2 billion, leading to a 5% dip in Richemont's share price on the JSE.

Richemont's jewelry division, featuring Cartier and Van Cleef & Arpels, grew 2% and remained the group's core revenue driver. However, its watch segment, including brands like IWC and Jaeger-LeCoultre, declined by 17%, worse than the 8.5% drop analysts had expected.

The fashion and accessories unit reported 2% growth, helped by Alaia and Peter Millar, but overall, it recorded a EUR23 million operating loss due to uneven brand performances and strategic investments. Chloe's new collections under designer Chemena Kamali received positive press but has not boosted sales significantly yet.

Richemont also reported another EUR1.3 billion loss from its e-commerce unit Yoox Net-a-Porter, which needs recapitalisation ahead of its sale to MyTheresa. The deal will see YNAP provided with EUR555 million in cash and a EUR100 million credit line, while Richemont will take a 33% stake in MyTheresa when the transaction closes, expected in early 2025. What a sorry saga this has been.

The luxury sector as a whole is facing some serious headwinds. However, Richemont seems to be handling it well thanks to their portfolio diversification and strong market positioning. We have 169 JSE-based clients who own Richemont, this one can be accumulated on weakness.