Richemont 6m update - sales slow

On Friday, Richemont released a six-month trading update which did not meet market expectations, and the stock dropped by 5.4%. This fall was a bitter pill to swallow considering that the stock is already down by around a third from its recent highs.

The last six months have been confusing. In the first quarter, the group enjoyed strong sales particularly from Asia, its biggest market. In the second quarter the sales trend in all regions went backwards. Negative currency movements dented these numbers, but the group also highlighted weak demand, in line with other luxury goods retailers like LVMH.

We would encourage you to not read too much into Richemont's sales volatility. China is the group's biggest market, and they kept Covid lockdowns in place longer than other regions. This resulted in unusually low Chinese sales two years ago, then a surge in spending last year when the restrictions were lifted, and now a more normalised period. In future, sales should be more stable.

Richemont CEO Johann Rupert is traditionally very cautious, and you can tell by looking at the balance sheet. Net cash has gone from EUR 4.8 billion to EUR 5.8 billion over the last year. Cash generation from operations was a juicy EUR 1.7 billion for the six months. This business is built to survive for the long term.

Even with the share price carnage on Friday, the stock is actually still up over the last 12 months. The volatility is frustrating, and very unpleasant, but Richemont is still one of the best companies listed on the JSE.