July 18, 2019 / 5:52 AM / a month ago

Watch sales stall at Richemont as Hong Kong protests bite

PARIS (Reuters) - Strong demand in mainland China helped Cartier-owner Richemont (CFR.S) offset a weaker performance elsewhere in its first quarter, as protests in Hong Kong hit sales, revenues fell in Europe and its watch business faltered.

FILE PHOTO: High-end jewellery is displayed at a Cartier store on Place Vendome in Paris, France, July 2, 2019. REUTERS/Regis Duvignau/File Photo

The group relies on jewelry for the bulk of sales, with brands that also include Van Cleef & Arpels, and strong momentum in this sector has persuaded rivals, including Kering’s (PRTP.PA) Gucci, to branch into high-end gems.

But Geneva-based Richemont is also a major player in the tougher watch industry, which is under pressure more broadly as consumers tastes shift, and has now been hit by political protests in recent weeks in Hong Kong.

In June, the United States overtook the Chinese-ruled city as the world’s biggest export market for Swiss watches, export data from Switzerland showed on Thursday, as sales into Hong Kong slumped.

“Sales in Hong Kong retreated, additionally impacted by the relative strength of the Hong Kong dollar and the recent street protests,” Richemont said of its overall business there.

Its shares were down 2.35% at 0730GMT, while those in rival Swatch (UHR.S), which shone on the stock market on Wednesday after it gave a rosy outlook for the second half of the year, were down 0.7%.

After buying back large amounts of excess watch stocks in recent years, Richemont, known for high-end IWC and Jaeger-LeCoultre luxury timepieces, has also been reducing wholesale distribution and keeping a tight leash on new inventory.

That shake-up of its retail network had contributed to the 2% fall in watch sales at constant currencies in the three months to end-June.

Richemont, which gave no full-year outlook, highlighted that more product launches were due later in its second quarter.

“Specialist watchmakers were once again rather weak, still impacted by distribution optimization,” analysts at Vontobel said in a note.

Sales at Richemont’s jewelry brands were stronger, however, rising 7% at constant currencies, and the group said that mainland China had more broadly proved a bright spot, mirroring trends across the broader luxury goods industry.

Some more fashion-orientated groups like Louis Vuitton owner LVMH (LVMH.PA) have benefited as Chinese shoppers spend more at home, encouraged by Beijing’s bid to boost domestic consumption with import tariff cuts that have fed through to prices.

In Europe, Richemont’s revenue fell 1% in the April to June period. Richemont’s overall sales rose 12% to 3.74 billion euros ($4.20 billion), up 9% at constant currencies.

This included its online distributors like Yoox Net-A-Porter, which it acquired full control of last year in a bid to accelerate its e-commerce push, an area where high-end watchmakers and jewelry firms are playing catch-up.

Without these platforms, sales would have been up 3% at constant exchange rates.

Reporting by Sarah White; Editing by Michelle Martin and Jane Merriman

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