Customers browse luxury products for sale inside a Cartier store. Richemont plans to introduce a model that has not been seen in listed companies with the departure of its chief executive. File Photo: Bloomberg
Customers browse luxury products for sale inside a Cartier store. Richemont plans to introduce a model that has not been seen in listed companies with the departure of its chief executive. File Photo: Bloomberg
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.
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.
The "Ballon Bleu" watch by Cartier is seen in Geneva, Switzerland. Richemont owns the Cartier brand. File picture: Denis Balibouse
The "Ballon Bleu" watch by Cartier is seen in Geneva, Switzerland. Richemont owns the Cartier brand. File picture: Denis Balibouse

INTERNATIONAL - Swiss watchmaker Richemont surprised investors with weak sales growth in Europe as the strong euro put off tourists, highlighting the luxury industry’s diverging regional fortunes as a rebound in Asia gathers steam.

European revenue rose at less than one-third the pace that analysts estimated in the five months through August, according to figures released by the Geneva-based maker of IWC Schaffhausen timepieces and Cartier jewelry on Wednesday. Sales in Asia rose more than twice as much as expected. 

Richemont joins Prada SpA and Pernod Ricard SA, which both recently warned that the strength of the euro is affecting luxury spending after outlays were previously held in check by fears of terrorism. That has cast a cloud over an industry recovery fueled by Asia’s bounceback from a multiyear slump after an official crackdown on corruption in China.

For Richemont investors, weakness in a region that accounts for almost a third of revenue overshadowed a 12 percent increase in total sales in the first five months. The stock fell as much as 2.4 percent in Zurich.

Richemont may announce new management changes in November, Chairman Johann Rupert told reporters on the sideline of the annual general meeting in Geneva. Georges Kern, the company’s head of watchmaking, left to lead Breitling in July

“We’ll make announcements in November, because obviously we’re looking at other people,” Rupert said. 

Management Overhaul

Richemont last year began a widespread overhaul in which Rupert abolished the group’s CEO position. Heads of several brands, including Piaget and Vacheron Constantin, were also shuffled. Kern took overall charge of watchmaking but held that post for just a few months.

Rupert said he remains friends with Kern and wishes him well in his new role at Breitling, which private equity firm CVC Capital Partners agreed to buy in April.

“I did tell him that to be an entrepreneur without the support services of the group, may prove to be an interesting experience,” the Richemont chairman said. “Our colleagues inside don’t always think of all the support services until you leave, and it’s pretty cold out there.” 

The 12 percent bump in sales includes Richemont’s exceptional inventory buybacks in the year-earlier period. Excluding that impact, revenue increased 7 percent. Retail and
wholesale sales climbed 12 percent and 11 percent, respectively.

“This is more of a step-by-step progress than a V-shaped recovery,” said Luca Solca, an analyst at Exane BNP Paribas. 

Revenue in Asia jumped 23 percent, beating the 11 percent analyst estimate, boosted by double-digit increases in China and Hong Kong. But Europe grew at only 3 percent, well below the 11 percent analysts expected.

One exception in Europe was the U.K., where sales grew at a double-digit rate because of the weakness of the pound in the wake of the vote to leave the European Union. Sales in the Americas were in line with the outlook, rising 9 percent.

The company, whose full name is Cie. Financiere Richemont SA, reports five-month sales on the day of its annual general meeting. It reports first-half results on Nov. 10.