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Richemont’s China growth slows, shares down
January 23, 2013
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PARIS: Cartier watches maker Richemont said sales growth had ground to a halt in the Asia-Pacific region, rekindling fears about a market which has been the driving force of luxury sales.

Shares in the world’s second-biggest luxury goods company fell over 6 per cent on Monday after it posted a smaller-than-expected rise in fourth-quarter group sales.

Other luxury stocks, which have been rallying since the start of the year on hopes demand in China was recovering from a wobble in 2012, were also dragged lower, including world number one LVMH and rival watchmaker Swatch.

“At this stage, it is unclear how business patterns may develop and how the business in the Asia Pacific region will evolve in the near future,” Richemont said in a statement.

The Swiss group’s caution contrasts with more upbeat news recently from British luxury brand Burberry, which pointed to a rebound in Chinese demand. Chinese shoppers accounted for a quarter of luxury purchases globally and surpassed US consumers to become the world’s biggest buyers of luxury goods last year, according to consultancy Bain & Co.

Earlier this month, Swatch forecast strong growth for the Chinese New Year and perhaps even for the year as a whole in China, while US jeweller Tiffany & Co said China was its only bright spot. Some analysts said that while investors were likely to be spooked by Richemont’s lower-than-expected sales, the maker of Montblanc pens was perhaps being overly prudent.

“I would be wary of throwing the baby out with the bath water. I think some of the sales were postponed from December given the timing of the Chinese New Year, which starts in February vs January in 2012,” said Jon Cox, analyst at Kepler Capital Markets.

“Overall, anecdotal evidence points to a recovery in the greater China region,” Cox said, adding he would not change his forecasts numbers for now.

Later on Monday, Christian Dior Chief Executive Sidney Toledano said many expected Chinese spending to pick up just before the country’s New Year. “There is a well-known seasonality in China,” Toledano said after the brand’s haute couture held in Paris. “People start buying just a few weeks before the Chinese New Year.” Demand in China slowed down in the second half of last year due to the once-in-a-decade leadership change in the Communist Party and a crackdown on corruption.

But analysts expect a first quarter rebound with the Chinese New Year celebrations in February and the National People’s Congress in March, where government positions will be confirmed and gifts bestowed. Richemont sales rose 5 per cent in the three months to Dec.31 to 2.86 billion euros ($3.8 billion), missing forecasts for a 7.6 per cent rise in a Reuters poll, as the previously booming Asia-Pacific region reported no growth. The company’s jewellery sales rose only 4 per cent, suggesting that high-margin Cartier slowed significantly, possibly driven by watches which already underperformed in the first half, Citi analysts said in a note.

Citi said Richemont also hinted sales had weakened at handbag maker Lancel and at Dunhill menswear accessories, while Montblanc had flat sales during the period.


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