Richemont Anticipates Sharp Drop in Profit

Geneva--A “difficult” global environment and having to buy back watches from retailers, particularly in Hong Kong and Macau, battered sales and profits for Richemont in the first five months of its fiscal year.

Ahead of its annual general meeting Wednesday in Geneva, the luxury goods conglomerate reported that between April and August, global sales dropped 13 percent year-over-year at constant exchange rates and 14 percent at actual rates.

Excluding the impact of the “exceptional watch returns” from the multi-brand retailers that stock Richemont’s watches--brands such as Baume & Mercier, Jaeger-LeCoultre, Vacheron Constantin and Piaget--sales were down 10 percent on a constant currency basis.

Looking ahead, the company said it expects the challenging retail environment to persist, and forecasts profit for the six-month period ending Sept. 30 to be down about 45 percent year-over-year.

“We are of the view that the current negative environment as a whole is unlikely to reverse course in the short term,” the company said in a statement. “However, we remain convinced of the long-term prospects for luxury goods globally and in particular for watches and jewelry.”

While Richemont turned in negative performances in all regions, the sales drop in the Americas was not as sharp.

Sales in the first five months of the year were down 6 percent in the region, with slow watch sales dragging down what was a positive performance by jewelry (Richemont owns Cartier and Van Cleef & Arpels) and accessories. That is significantly better than the 18 percent drop in Europe and the 25 percent in Japan, Richemont’s worst-performing region.

Richemont’s retail channel, which saw sales decline 6 percent in the period, outperformed its wholesale channel, which experienced a 21 percent drop in sales, and jewelry sales (down 15 percent) outperformed watches (down 18 percent).

The company is set to report its results for the six-month period ended Sept. 30 on Nov. 4.

Richemont’s particularly dim watch results signal more trouble for the struggling Swiss industry, which back in July saw watch giant Swatch Group report an 11 percent drop in sales at constant exchange rates and a 52 percent decline in profit for the first six months of the year.