Richemont Sales Slip Stalls;Rupert Tightens Grip
13.11.09, 12:00 Uhr
ZURICH -(Dow Jones)- Luxury goods maker Compagnie Financiere Richemont SA (CFR.VX) Friday reported a 39% fall in first-half operating profit, but the smaller-than-feared decline - as well as the company's cautious optimism for the all-important Christmas sales season - lifted the company's shares.
The Geneva-based owner of jewelry brand Cartier and specialist watchmakers such as Jaeger-LeCoultre also said that Executive Chairman Johann Rupert, Richemont's leading figure and member of the controlling family, will also act as Chief Executive Officer as of Apr. 2010, replacing Norbert Platt who will step down for health reasons.
Analysts generally welcomed Rupert's increased hold on power, noting this ensures continuity on the top management level, but some said the step may raise questions regarding corporate governance.
On the Swiss bourse at 0930 GMT, the stock was up 4.8%, or 1.46 Swiss francs, at CHF31.75, in a flat general market. The shares have gained around 50% so far this year on investors' expectations the company would be one of the beneficiaries of a global economic recovery.
Operating profit for the six months to Sept. 30 declined 39% to EUR390 million from CHF635 million, besting market expectations of EUR322 million. In the past few quarters, Richemont has cut costs in its supply chain and has been reducing hours for Swiss employees at its Cartier and Piaget operations.
Net profit fell to EUR400 million from EUR867 million a year ago when it was boosted by dividends from Richemont's 19% stake in British American Tobacco PLC (BTI), spun off last autumn.
On a continued operations basis, net profit was EUR344 million, which was above analyst expectations of EUR260 million.
Sales declined 15% to EUR2.38 billion from EUR2.80 billion, broadly in line with market views of EUR2.36 billion.
In October, sales were down 10% globally with most regions posting declines except for Asia where turnover rose 11%, Richemont said.
"We remain cautious as to the sustainability of the improving economic outlook that we are seeing today and are prepared for a long recovery process," said Executive Chairman Rupert.
However, the company, which has a reputation of being conservative in its guidance, said it is relatively upbeat regarding the upcoming Christmas season.
"Hopefully, we'll be above last year's level," said CEO Platt said in a media call.
Analysts welcomed the results, spotting first signs of an improvement after a several quarters of massive declines.
"Richemont's earnings clearly beat consensus expectations as cost efficiencies are taking effect," Bernstein Research analyst Luca Solca said, pointing out that the decline in sales is slowly bottoming out.
He said Richemont remains the preferred hard luxury play with a more attractive valuation than rival Swatch Group AG (UHR.VX). He has a hold rating and a price target of CHF35.
Kepler analyst Jon Cox highlighted the rebound in the Asia/Pacific region, reaffirming a buy rating and a CHF35 price target.
Executive Chairman Rupert's assumption of the additional role of CEO has been anticipated by some analysts, as he has held the position in the past. But there has also been speculation that other executives such as Chief Financial Officer Richard Lepeu, Cartier head Bernard Fornas, or Jaeger-LeCoultre top manager Jerome Lambert may take on the position.
Rupert, born in 1950, said he doesn't plan to stay on "ad infinitum," indicating he would retire once the current economic crisis is through.
"We see the announcement of Johann Rupert resuming the position of CEO as a positive move as he was always responsible for strategy," Bank Vontobel analyst Rene Weber said. He upgraded the stock to buy from hold.
Zuercher Kantonalbank analyst Patrik Schwendimann said the appointment "isn't optimal" in terms of good corporate governance.
Richemont said it had appointed longstanding board member Robin Renwick as Lead Independent Director to balance out Rupert's double mandate.
Analysts generally welcomed Rupert's increased hold on power, noting this ensures continuity on the top management level, but some said the step may raise questions regarding corporate governance.
On the Swiss bourse at 0930 GMT, the stock was up 4.8%, or 1.46 Swiss francs, at CHF31.75, in a flat general market. The shares have gained around 50% so far this year on investors' expectations the company would be one of the beneficiaries of a global economic recovery.
Operating profit for the six months to Sept. 30 declined 39% to EUR390 million from CHF635 million, besting market expectations of EUR322 million. In the past few quarters, Richemont has cut costs in its supply chain and has been reducing hours for Swiss employees at its Cartier and Piaget operations.
Net profit fell to EUR400 million from EUR867 million a year ago when it was boosted by dividends from Richemont's 19% stake in British American Tobacco PLC (BTI), spun off last autumn.
On a continued operations basis, net profit was EUR344 million, which was above analyst expectations of EUR260 million.
Sales declined 15% to EUR2.38 billion from EUR2.80 billion, broadly in line with market views of EUR2.36 billion.
In October, sales were down 10% globally with most regions posting declines except for Asia where turnover rose 11%, Richemont said.
"We remain cautious as to the sustainability of the improving economic outlook that we are seeing today and are prepared for a long recovery process," said Executive Chairman Rupert.
However, the company, which has a reputation of being conservative in its guidance, said it is relatively upbeat regarding the upcoming Christmas season.
"Hopefully, we'll be above last year's level," said CEO Platt said in a media call.
Analysts welcomed the results, spotting first signs of an improvement after a several quarters of massive declines.
"Richemont's earnings clearly beat consensus expectations as cost efficiencies are taking effect," Bernstein Research analyst Luca Solca said, pointing out that the decline in sales is slowly bottoming out.
He said Richemont remains the preferred hard luxury play with a more attractive valuation than rival Swatch Group AG (UHR.VX). He has a hold rating and a price target of CHF35.
Kepler analyst Jon Cox highlighted the rebound in the Asia/Pacific region, reaffirming a buy rating and a CHF35 price target.
Executive Chairman Rupert's assumption of the additional role of CEO has been anticipated by some analysts, as he has held the position in the past. But there has also been speculation that other executives such as Chief Financial Officer Richard Lepeu, Cartier head Bernard Fornas, or Jaeger-LeCoultre top manager Jerome Lambert may take on the position.
Rupert, born in 1950, said he doesn't plan to stay on "ad infinitum," indicating he would retire once the current economic crisis is through.
"We see the announcement of Johann Rupert resuming the position of CEO as a positive move as he was always responsible for strategy," Bank Vontobel analyst Rene Weber said. He upgraded the stock to buy from hold.
Zuercher Kantonalbank analyst Patrik Schwendimann said the appointment "isn't optimal" in terms of good corporate governance.
Richemont said it had appointed longstanding board member Robin Renwick as Lead Independent Director to balance out Rupert's double mandate.
Company Web site: http://www.richemont.com
DJG/dok
