Richemont FY numbers - sales down

Richemont, the luxury goods producer, released results for their full year last Friday. Sales had fallen as a result of a tricky operating environment. Asia Pacific was flat, it still constitutes 37 percent of the overall business by sales, Europe is 29 percent, having fallen recently, much of that due to the recovery of the Americas (which is now 17 percent of all sales). There were pockets of strength, Mainland China, Korea and the UK, as well as the US.

Sales were 4 percent lower to 10.647 billion Euros, gross margins were collectively 40 basis points lower, operating margins fell 200 basis points to 16.6 percent, a much sharper slide. Profits and earnings per share were 46 percent lower to 1.21 billion Euros and 2.141 Euros respectively. To translate that back to Swiss Francs at the prevailing rate, you get 2.34 Swiss Francs worth of earnings per share. The dividend was hiked by 6 percent to 1.80 Swiss Francs.

At the current level of 82.25 Swiss Francs that translates to a multiple of 36.8 times (very rich as a result of the plunge in earnings), the dividend yield (pre a hefty 35 percent Swiss dividend withholding tax) is around 2.2 percent. The stock looks expensive. The yield may be above the Swiss Treasury yield. Anything is above negative. True story, currently the Swiss Generic Ten year bond is 0.054 percent MINUS. Yes. You pay the Swiss government to park your money. In the Swiss Central Banking system we definitely trust .... at least that is what the market is telling you - Switzerland Govt Bonds 10 Year Note Generic Bid Yield.

There have been a number of management changes recently. The CEO will be up for election in a separate capacity, the new management team is fresher and a whole host of people will not be available for re-election, including some long standing board members. New ones include Anton Rupert (the son of Johann Rupert, the chairman), clearly the best person for the job. Enough sarcasm, there has been plenty of continuity in looking after the hefty family stake. I suppose .... nobody looks after number one like number one, right?

The outlook is worth interrogating. In his prepared remarks in the results, Chairman Johann Rupert had the following to say, it is possibly worth ALL copying and pasting:

"Volatility and uncertainty in the geopolitical and trading environments are likely to prevail. Our attention is focused on transitioning the Group to adjust to operating in a more sustainable growth environment, by adapting our product offer, communication and distribution to new consumption patterns while allocating resources primarily towards research and innovation, digital marketing, online sales platforms and training in all of our Maisons.

Richemont has a strong cash flow and a strong balance sheet that enables us to focus on value creation for shareholders over an extended time horizon. This approach allows our Maisons, which have significant brand equity and heritage, to plan and grow in what we continue to believe is a unique business with excellent long-term prospects."

Agreed. They are just transitioning and their watches business is clearly under pressure, it will stabilise at some level. For now, we are holders of the premier jewellery business, knowing that this industry is millennia old. It is not going away. Not in ten years time, not in a century time.