Richemont calls time on luxury bulls as another dividend cut – The Wall Street Journal

Hopes from the luxury industry that there could be a quick rebound from the coronavirus have been dashed by Swiss watch empire Richemont as it warned that the "grave economic consequences" of the Covid-19 pandemic could last three years. This was a reality check from Richemont chairman, Johann Rupert normally known for his bearish attitude towards the future which was in sharp contrast with the outlook presented by luxury goods leader LVMH that expected signs of a recovery within weeks. Bloomberg reported that Richemont was bracing itself for one of the worst years in decades after its operating profit fell 22% in the 12 months through March. This is despite reported signs of a recovery in China where Richemont opened its 462nd store. The South African billionaire said he anticipated a move away from bling and that after the coronavirus 'vulgar display' would be frowned upon even more. The Wall Street Journal's Carol Ryan reports that another dividend cut by Richemont is a warning to investors betting on a rapid rebound. – Linda van Tilburg.Swiss watchmaker calls time on luxury bulls.By Carol Ryan.(The Wall Street Journal) – Another dividend cut in the cash-rich luxury sector is a warning to investors betting on a rapid rebound – even from a company known for its conservatism..___STEADY_PAYWALL___.Cie. Financière Richemont, the Swiss company behind Cartier and Van Cleef & Arpels, said Friday that sales in its fourth quarter, covering the three months through March, fell 19% year over year at constant exchange rates. Demand cratered in Asia as a result of coronavirus-related lockdowns in mainland China and Hong Kong, but held up better than expected in the Americas region. Business has been brisk in recent weeks since Richemont's 460 Chinese boutiques reopened..The picture is far less rosy on costs. Operating profit in the company's second half was 30% below analyst forecasts. The numbers imply that margins dropped to just 5.2% for the period, according to Citi calculations..The pandemic has hit Richemont's business in several ways. As spooked investors pile into havens, a spike in the gold price is making it more expensive to produce watches and jewellery. The prospects for passing the higher costs on to consumers without hitting sales are weak. The strengthening of the Swiss franc – a traditional haven – is also unhelpful to watch manufacturers like Richemont who produce in Switzerland but make most of their sales in Asia and the US..Losses accumulated at Richemont's online division, home to cash-hungry e-commerce businesses Yoox Net-a-Porter and secondhand watch website Watchfinder. In a sign that online luxury retail has become fiercely competitive, YNAP had to offer deep discounts to drive sales. Most brands will have to make similar price cuts to shift inventory that has built up during store lockdowns, pressuring margins across the sector..To save cash, Richemont cut its dividend by 50%. However, it will explore an equity-based "loyalty bonus"—an option for investors to buy stock at a favourable but yet-to-be determined price. The move is significant for a company that didn't cut its payout during the 2008 financial crisis.."It might reflect a more profound change in the way the company is thinking about the length of this downturn relative to other shocks," says Thomas Chauvet, luxury goods analyst at Citi..Richemont chairman and anchor shareholder Johann Rupert, who is known for his bearish views, said the pandemic will cause a "reset" to the global economy, rather than the pause that some shareholders are hoping for..Despite some problems in recent years, Richemont still has one of the strongest balance sheets in the luxury business – €2.4bn ($2.59bn) of net cash at the latest count – and some of the best jewellery brands in the world..Signs that it is hunkering down for bad times should give pause to those who have come to see top-notch luxury as being somewhat insulated from wider economic trouble..– Write to Carol Ryan at carol.ryan@wsj.com

Richemont calls time on luxury bulls as another dividend cut – The Wall Street Journal

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