Richemont out with results this morning

Richemont out with results this morning. 599 million Euros worth of profits is a miss, the market consensus was at 725 million Euros more or less. Margins under pressure, notwithstanding some good cost cutting exercises. Operating profits were 14 percent down, whilst sales were lower by four percent to 5.176 billion Euros. From the release:


"The lower margin primarily results from the lower levels of manufacturing capacity utilisation and the strengthening of the Swiss franc during the year. With almost all of the Group's watchmaking facilities being located in Switzerland (A. Lange & Sohne is based in Germany), the Swiss franc is of particular importance to the Group's cost of sales. The lower gross margin percentage, combined with the decrease in the value of sales, led to a gross profit decrease of 7 per cent."



Break it down, as Hammer would say. From a divisional revenue contribution. Jewellery sales 3 percent lower in Euro terms at 2.688 billion, Watches 6 percent lower at 1.353 billion, pen sales also 6 percent lower at 0.551 billion and lastly "Other" (leather goods, fancy hand bags etc.) 8 percent lower at 0.584 billion Euros. Operating profits are really heaped at the jewellery division, 742 million Euros and then watchmakers contributing 231 million Euros. Pens (they call it Writing instrument Maison) contributes 79 million Euros whilst contribution from "Other" (remember that must also include the recently acquired Pret-a-porter) makes an operating loss.



OK, here is the part that most interests me, the trends of their geographic sales. In Europe sales fell 11 percent in Euros at 2.099 billion. Makes sense it is their currency. For now. In the America's it fell 20 percent to 712 million Euros. In Japan, a big luxury goods market, sales in Euro terms were down 17 percent to 625 million Euros. And now for the interesting part, in Asia Pacific sales increased 17 percent to 1.74 billion Euros. A repeat performance from this division will see it next year as the most profitable region for the company. The economic shift East is happening in front of our eyes. A bright spot in the results. Another is that "Richemont announces a programme to buy-back up to 10 million Richemont ‘A' shares through the market over the next two years..."



I think that the earnings miss will weigh on the stock today. Still, notwithstanding the fall in earnings this is a very profitable company with a sharp geographical swing happening. Their outlook from the JSE release which was a lot later than the international release sums it nicely: "Richemont has weathered the economic crisis to date and is in a strong financial position. Our businesses reacted quickly and positively to the downturn in demand and have grown market share..... There will still be plenty of challenges ahead but we are confident that Richemont's Maisons will surmount them."