Bloomberg News

Richemont Forecasts Higher Annual Operating Profit on Asia

November 13, 2011

(Updates with closing share price in sixth paragraph.)

Nov. 11 (Bloomberg) -- Cie. Financiere Richemont SA, the second-biggest luxury-goods maker, forecast “significantly” higher full-year operating profit after first-half net income rose 10 percent, boosted by increased sales of Cartier jewelry and Piaget watches in Asia.

Net income increased to 709 million euros ($977 million) in the six months through September, the Geneva-based maker of Vacheron Constantin watches said today on its website. That beat the 674.6 million-euro average estimate of nine analysts surveyed by Bloomberg.

Asia-Pacific revenue climbed 48 percent as rising levels of wealth boosted demand for high-end goods. The market for luxury products in Asia-Pacific may grow 19 percent this year, according to Bain & Co. Richemont got 41 percent of sales from the region, and the company now has 323 stores in China.

“We’ve enjoyed solid growth in an uncertain environment in the first half,” said Chief Financial Officer Gary Saage on a webcast. “Asia-Pacific is now our No. 1 region.”

October sales rose 28 percent after first-half revenue rose 29 percent to 4.21 billion euros. That beat the company’s forecast, Saage said. First-half operating profit rose 41 percent.

Asian Acceleration

The stock rose 1.3 percent to 48.72 Swiss francs in Zurich.

Baume & Mercier, a watch brand that revamped its product lines this year, should break even this fiscal year, which runs through March 2012, Richemont said.

Revenue from Europe and the Americas increased 20 percent and 23 percent, respectively. Sales in China rose 64 percent, making that Richemont’s third-largest market, after Hong Kong and the U.S., the jeweler said.

“It looks like Asia accelerated in September and things look pretty strong, even in October,” said Jon Cox, Zurich- based head of Swiss equities research at Kepler Capital Markets. “It’s a very strong set of figures.”

Hermes International SCA, LVMH Moet Hennessy Louis Vuitton SA, Burberry Group Plc and PPR SA have reported quarterly sales that beat analysts’ estimates in recent weeks.

“We’re starting to see a bit of a slowdown” in domestic demand in Europe, though sales to tourists in the region remain strong, Saage said.

Richemont’s net income growth slowed from the 82 percent pace for the full year through March. The previous first half included a 101 million-euro accounting gain stemming from the purchase of online fashion retailer Net-a-Porter.

‘A Mess’

“It is extraordinarily difficult to predict what’s going to happen,” Richemont Chairman Johann Rupert said on a conference call. Europe and the U.S. will be in a “mess for a considerable period of time.”

Revenue from the watch division climbed 30 percent to 1.17 billion euros, beating the 1.14 billion-euro average estimate of 10 analysts surveyed by Bloomberg. The maker of Jaeger-LeCoultre timepieces got about a third of its sales in the six months through September from specialist watchmakers.

The unit’s operating margin, a measure of profitability, declined by 2.2 percentage points to 26.6 percent due to higher raw-material costs and a strengthening of the Swiss franc, which increased the cost of making watches in Switzerland when translated into euros.

Revenue from Richemont’s jewelry unit increased 34 percent to 2.17 billion euros, exceeding analyst estimates of 2.15 billion euros. The division generates about half the company’s sales.

Richemont said it plans to invest 7 percent to 8 percent of sales in fixed assets such as production and stores this year, with the company’s retail space expected to increase about 7 percent. The luxury-goods maker will also press ahead with plans to hire about 2,000 people over the next two years.

Richemont sells products under 19 brands, including Purdey, the luxury hunting-gun maker founded in 1814, and Alfred Dunhill, the London-based maker of leather goods, fashion and lighters.

Richemont said it had net cash of 2.6 billion euros at the end of September.

--With assistance from Thomas Mulier in Geneva. Editors: Thomas Mulier, Paul Jarvis

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net


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