Richemont points to China slowdown

Reuters.

People walk past a jewellery store offering watches of Swiss luxury watchmaker International Watch Company (IWC), which is part of Swiss luxury goods group Richemont at the Bahnhofstrasse in Zurich.

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 in recent years.

Shares in the world's second-biggest luxury goods company fell over 6 percent in early Monday trading 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 firm'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.

GROWTH AHEAD

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 it is expected by analysts to rebound strongly in the first quarter 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 percent at constant exchange rates in the three months to December 31 to 2.86 billion euros ($3.8 billion), missing forecasts for a 7.6 percent rise in a Reuters poll, as the previously booming Asia-Pacific region reported no growth.

The group said the rate of wholesale growth fell in the quarter to just 2 percent from 8 percent in the April to September period due to caution by retailers in Hong Kong and mainland China and a less favourable environment.

Boutique openings helped retail sales but growth also slowed down to 9 percent, from 15 percent in the first half.

“The flat development in Asia-Pacific is a disappointment but reflecting the recent weakness in the high-end watch business in Greater China,” Vontobel analysts Rene Weber said.

The maker of IWC and Lange & Soehne watches said sales growth in the Americas accelerated to 13 percent from 4 percent in the first half, with both retail and wholesale doing well, but sales growth slipped to 9 percent in Europe from 19 percent. - Reuters