Richemont Sales Growth Slows Down on U.S. and Japan

Source from:  By Thomas Mulier Jan. 23 (Bloomberg) 01/25/2008

Cie. Financiere Richemont SA, the world's largest jewelry maker, said third-quarter sales growth slowed after wealthy Americans and Japanese bought fewer Cartier necklaces and Piaget watches. Richemont fell as much as 11 percent to the lowest in almost 18 months in Zurich trading after saying today on its Web site sales rose 8 percent to 1.67 billion euros ($2.4 billion) in the three months through December. That was below the first half's 11 percent gain and the 9 percent median estimate of 15 analysts surveyed by Bloomberg. Growth also weakened at constant exchange rates. Concern that Americans may be spending less on luxury goods such as Geneva-based Richemont's Jaeger-LeCoultre timepieces has increased since jeweler Tiffany & Co. reported lower holiday same-store sales this month. Lehman Brothers Holdings Inc. yesterday put the chance of a recession in the country at 40 percent, and the Federal Reserve cut its main interest rate in an emergency move. ``Luxury is cyclical, and it'll be affected by a slowdown in developed markets,'' Guillaume Duchesne, who helps oversee about 80 billion euros as a strategist at Fortis Private Banking in Geneva, including Richemont shares, said after the figures were released. ``We're being prudent on the industry.'' Purdey Shotguns Richemont shares lost 4.15 Swiss francs, or 6.7 percent, to 58.25 in Zurich. They have slid 17 percent in the past year, about the same as LVMH Moet Hennessy Louis Vuitton SA, the maker of Dior timepieces, while Swatch Group AG, owner of the Blancpain brand, has dropped 3.2 percent. Sales growth slowed to 10 percent including currency movements in December on the U.S. and Japan, said Richemont, the maker of Purdey shotguns. Third-quarter revenue gained 14 percent at constant exchange rates, below the first half's 16 percent advance. ``The slowdown in December gives a taste of what to expect,'' said Alessandro Migliorini, an analyst at Helvea in Geneva with a ``neutral'' recommendation on the stock. Third-quarter sales gained 10 percent at Richemont's watch unit, continuing to lead gains. Revenue from pens such as its Mont Blanc range climbed 9 percent, and jewelry sales rose 7 percent. ``Watches were the main engine of growth,'' said Jon Cox, an analyst at Landsbanki Kepler in Zurich with a ``buy'' rating on the stock. ``The big question is whether this can hold up amid the U.S. slowdown.'' Currency Movements Richemont, like other European luxury companies, also faces declines by the dollar and yen against the euro, its reporting currency, that have curbed growth. The yen on average was 7.3 percent lower against the euro in the three months through December compared with a year earlier, and the dollar was 11 percent lower, eroding U.S. and Japanese revenue on conversion to euros. Total sales from the Americas were unchanged at 327 million euros as the weaker dollar weighed on growth. Excluding that effect, revenue rose 10 percent. Japanese sales fell 6 percent to 215 million euros and rose 2 percent excluding exchange rates. Swatch Group, the world's largest watchmaker, last week reported an 18 percent gain in 2007 sales after Chinese, Indian and Middle Eastern customers bought luxury timepieces. Swiss watch exports rose 17 percent to a record 1.79 billion francs ($1.6 billion) in November as Chinese shoppers bought more timepieces in Hong Kong. Export growth probably will slow to between 5 percent and 6 percent in 2008 after gaining 15 percent in the year through November, Jean-Daniel Pasche, head of the Federation of the Swiss Watch Industry, said Dec. 20. More Spending ``If current market fears about a worldwide economic slowdown are founded, watches may be the hardest-hit'' area of luxury goods, Erwan Rambourg, an analyst at HSBC Securities, wrote in a Jan. 17 note. He has a ``neutral'' rating on Richemont. Spending on luxury goods will double to 300 billion euros in five years, led by growth in emerging markets, Bernard Arnault, LVMH's chief executive officer, said Nov. 28. Swatch will have a ``super record year'' in 2008, aided by its Beijing Olympics sponsorship, CEO Nicolas Hayek Jr. said Jan. 18. Record bank bonuses may help the industry. The five biggest U.S. securities firms paid their employees $66 billion in 2007, including an estimated $39 billion in bonuses. Workers received average pay of $353,089. Richemont said it will update investors on plans for its 19.3 percent stake in British American Tobacco Plc, the London- based maker of Lucky Strike cigarettes, at a later date. The holding is worth about 7 billion pounds ($13.7 billion) at the stock's current price. The luxury-goods maker said in November it would consider spinning off the stake. To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net . Enditem