Paris - Richemont’s e3.86 billion (R53.5bn) cash pile would help its 20 brands grow as it ruled out selling any labels, including ailing bag maker Lancel, the luxury goods maker said on Friday.
The French maker of Brigitte Bardot purses was not for sale after its parent company studied strategic options, chief financial officer Gary Saage said.
Richemont could get better returns by investing in its current brands rather than disposing of underperforming assets, the company decided after finishing a portfolio review, he said.
Johann Rupert, who began a one-year sabbatical from his position as chairman in September, said in May that the company should have been quicker to cull bad investments. The departure of the head of Richemont’s fashion and leather-goods businesses earlier this year sparked speculation that parts of that business might be on the block after underperforming the jewellery and watchmaking brands, such as Cartier and Jaeger-LeCoultre.
“The decision not to sell anything in the medium term is the best solution,” said Stephanie D’Ath, an analyst at Sanford C Bernstein. “They have cash on the balance sheet and that gives them money to invest. In a few years, if the market is more positive and there is a good buyer, they may reconsider.”
The Swiss-listed stock fell 1.9 percent by 11.25am on Friday in Zurich after Yves-Andre Istel, a former Rothschild executive who replaced Rupert as chairman, said the “subdued overall environment and in particular our continued investments for the long-term call for increased caution”. On the JSE, the shares fell by 1.24 percent to close at R103.20 on Friday.
Operating profit dropped 0.7 percent to e1.37bn in the six months to the end of September, hurt by the weakness of currencies such as the Japanese yen, Richemont said.
While the comparisons for the Christmas season would be easier this year, currency shifts would weigh on second-half earnings, Richemont said.
Richemont had devised turnaround plans for Montblanc and Alfred Dunhill, the two units that were suffering the most, Saage said. Montblanc’s operating profit dropped 55 percent in the first half to e24 million, partly due to provisions for a shake-up that includes exiting high-end jewellery for women.
Montblanc’s new head, Jerome Lambert, plans to change the maker of pens, watches and accessories into a “more accessible” luxury brand.
For the first time, Dunhill was led by a “product guy” after Fabrizio Cardinali, a former chief executive of Lancel, took over management, Saage said.
The only brand Richemont was considering strategic options for was Lancel, Saage said.
Sanford C Bernstein estimates the unit is worth e300m to e500m, while Rene Weber, an analyst at Bank Vontobel, said it might be worth about e200m.
The company said last month that it would not sell online fashion retailer Net-a-Porter after Il Sole 24 Ore said Yoox had held talks with Richemont about a merger with the online retailer and discussions stalled.
The Swiss company’s net cash increased 27 percent as of September 30 compared with the same date a year earlier. Operating profit of a unit that includes fashion, accessories, Net-a- Porter and watch component production almost tripled to e35m as sales rose 6 percent to e712m.
Total first-half sales increased 4.3 percent to e5.32bn.
Revenue in the Asia-Pacific region, the source of about 40 percent of sales last year, is rising more slowly as China cracks down on the use of watches and jewellery as bribes and illegitimate gifts. Growth in that market was 4 percent in the first half, excluding currency shifts. Asia-Pacific revenue rose 5 percent on that basis in the past fiscal year and 46 percent in the prior 12 months.
“While sales may increase in the second half, profit growth may be limited as the company spends on investment,” Renaissance Capital analyst Rey Wium said.
Richemont planned capital expenditure of e800m to e850m this fiscal year and an increase of 50 stores, Saage said. – Bloomberg