Richemont rallies most in three years after strong holiday sales

By Corinne Gretler

(Bloomberg) – Richemont shares rallied the most in three years as strong appetite for Cartier jewellery and IWC watches during the holiday season signalled consumers still want to splurge on luxurious bling.

The improvement comes as a relief to investors after a first half that was marred by protests and store closures in Hong Kong and contracting profitability in the jewellery business. The shares gained as much as 5.7%.The results suggest consumers are still willing to spend big on luxury goods even as the global economy cools. Household spending has held up in many developed economies thanks in part to strong labour markets and low unemployment, particularly in the US.

Growth was led by jewellery, while Richemont’s watchmaking unit rebounded from a first-half decline in the first half. Flat wholesale revenue, which had retreated in previous years, showed Richemont is making progress in weeding out distribution partners in an attempt to avoid excess inventory at watch retailers.

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“The jewellery improvement will allay fears that the product was losing its lustre,” said Jon Cox, an analyst at Kepler Cheuvreux. “In Cartier, the company has the world’s strongest jewellery brand.”

Richemont soon will face more intense competition in jewellery after LVMH agreed to buy Tiffany & Co. for $16bn last year. Analysts expect the US brand will be a stronger rival to Cartier under its new French owners.

Other watchmakers and luxury companies rose in early trading. Swatch Group AG gained as much as 3.1% and Kering SA climbed 1.4%. Luxury leader LVMH added 0.9%.

One disappointment for investors was the online distributor unit, which slowed to 2% from double-digit growth in the six months through September. The company blamed the deceleration on increasing competition on pricing and storm damage to a warehouse in Landriano, Italy, that supplies its Mr Porter site.

Sales in Japan declined as tourists stayed away due to a strong yen and the implementation of a value-added tax increase in October. Protests in Hong Kong had a severe impact on the business, but declines in both countries were offset by demand elsewhere.

“The core jewellery and watches business even look better off than anticipated, considering the temporary pause in Japan and the strong headwinds in Hong Kong,” Luca Solca, an analyst at Sanford C. Bernstein, wrote in a note.

Sales climbed 4% excluding currency shifts, reaching €4.16bn ($4.6bn) in the three months through December.

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