Richemont shares slump to 52-week low on slower-than-expected sales, China impact
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Compagnie Financière Richemont SA (OTCPK:CFRHF) shares fell by the largest margin in years after a bearish earnings report on Friday.
The Bellevue, Switzerland-based Cartier parent cautioned that Chinese demand remains slow as lockdowns continue to temper growth in the region and 40% of its retail network stands shuttered. Net profits of €2.08 billion for the year came up well short of Wall Street estimates set at €2.75 billion and profits hit by a 75% increase in corporate costs.
Additionally, there was concern about the prolonged process to offload a stake in its Italy-based online marketplace Yoox Net-a-Porter to Farfetch (NYSE:FTCH) and push the unit toward profits. While the company’s chairman Johann Rupert indicated talks are progressing smoothly, the elongated process is trying investors’ patience.
Yet, likely the largest culprit for the deep drop in shares is caution on the Asia Pacific region, which makes up 41% of group sales.
“Recent localized Covid-related lockdowns, particularly in China, led to temporary boutique closures in March 2022, negatively impacting an otherwise strong quarter,” a management commentary notes. “Even if the worst of Covid is hopefully behind us, we face a global environment which is the most unsettled we have experienced for a number of years.”
The unsettled environment was pointed to not only in terms of sales, but in supply chains and impacts from the Russian invasion of Ukraine. The impact includes a withdrawal from Russia, a market that accounted for less than 2% of Group sales. The pullout also prompted a €168 million negative operating result impact.
Shares fell nearly 14% in midday US trading on Friday, touching a 52-week low. The swiss watchmaker’s stock has waned nearly 40% since the start of 2022.
While luxury demand is generally resilient to inflationary concerns given affluent customer bases, the outright shutdown of the Chinese market that has undergirded growth theses on the industry apparently spooked investors. This dynamic certainly holds implications beyond Richemont as well.
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