Nicola Mawson
Following disappointing results from Swatch Group, a profit warning from the UK’s high-end Burberry, and a marginal increase in sales by Richemont, which is controlled by South African billionaire Johann Rupert, analysts are moderating their expectations on the sector.
Richemont, the first of the large high-end luxury companies to report its financial results, on Wednesday said it slightly increased sales in the three months to end June by 1% in constant currency to €5.3 billion (R105.3bn).
However, Richemont said its sales in the quarter were constrained by the Asia Pacific region, where items sold declined 18%. It also noted that higher sales in South Korea and Malaysia only partially mitigated a 27% decline in China, Hong Kong, and Macau combined. The company’s shares closed 1% lower on the numbers.
In terms of smaller rivals, Swatch Group (Omega and Tissot, among others) has also been hit, with the company reporting a 72% drop in net income and 14% drop in sales for the first six months of the year, as it also battled lower sales in China. These figures led its shares 10% lower.
In the UK, Burberry issued a profit warning, saying it was replacing its CEO Jonathan Akeroyd, and also took a hit to its share price after the announcement.
Peter Little, fund manager at Anchor Capital, said Richemont was the first of the four major high-end luxury companies to report with Dior, Fendi, Tiffancy & Co and LVMH’s numbers set to be printed on July 23, Kering (Gucci and Saint Laurent) the day after, and Hermes on July 25.
Little added that China, which has dragged some luxury goods companies down recently, was struggling with low consumer confidence as there was still no sign of recovery in its property market.
He said the US and European markets were standing up to some extent, although the US market was stronger than that of the European bloc.
“The recent results that caused some anxiety among investors were Burberry and Swatch, who both released disappointing results, though these tend not to cater as much to the extremely high-end of the market,” said Little.
Tasneem Samodien, research analyst at private clients at Old Mutual Wealth, said analyst consensus expectations have been moderating lower across the luxury industry for several reasons.
Samodien said three of these reasons included a slowdown in the sale of luxury watches and apparel, most notable in Google trends for Swatch’s Omega, Kerring’s Gucci and Burberry, among others.
She said, economic data reports from China indicated continued weakness in Mainland China, which remained a large market for the industry.
Samodien said demand from the wholesale channel had softened as consumer sentiment weakened – a function of rates being higher for longer as well as escalating geopolitical tensions.
“The above sentiment was confirmed with the results of Swatch and Burberry. Swatch’s operating income was nearly 60% below consensus expectations driven by a weaker sales performance and a relatively high fixed-cost base,” said Samodien.
Burberry similarly missed consensus and guided for a potential operating loss if current demand trends are maintained, she said.
The fact that the trenchcoat-maker suspended its dividend and the CEO stepped down with immediate effect weighed on sentiment across the sector and sent share prices declining, Samodien said.
In this context Samodien said Richemont, owner of brands such as Jaeger-LeCoultre, Chloé, Delvaux, Dunhill, Montblanc, saw its sales figures being “well received”.