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Sep 12, 2013
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Richemont says China demand weak as sales rise overall

By
Reuters
Published
Sep 12, 2013

GENEVA, Switzerland - Sales at luxury goods group Richemont rose 9 percent in the five months through August, just shy of forecasts, as weak demand for its watches in mainland China eclipsed strong jewellery sales in the Americas.

"Asia-Pacific was led by good growth in Hong Kong and Macau, offset by lower sales in mainland China," the maker of Cartier jewellery and Piaget watches said in a statement on Thursday.

Luxury goods groups have been grappling with weak demand in their most important growth market, China, but most recently there have been signs that demand may be recovering.

Tiffany, Prada and Coach have reported good sales growth in China, while Kering still noted weak Chinese demand and Hermes said its timepieces in China were suffering from a crackdown on expensive gifts for favours.

Richemont said its sales growth in the Asia-Pacific region slowed to 4 percent from 12 percent a year ago, hit by lower sales in mainland China.

Sales at Richemont's jewellery brands or maisons grew 8 percent, while sales at its specialist watchmakers, which include Vacheron Constantin and IWC, were up 13 percent.

"Jewellery maisons was below (expectations) despite strong jewellery sales," analyst Rene Weber at bank Vontobel said.

Cartier is by far Richemont's biggest jewellery brand but it also makes watches, which are included in the jewellery business unit and have recently been quite weak.

Analyst Luca Solca at brokerage Exane BNP Paribas said sales growth in Asia-Pacific was still "weakish", referring to earlier statements by finance chief Gary Saage that "watches sales in China fell off a cliff" in October last year.

Shares in Richemont, which have risen 31 percent so far this year, opened 2.9 percent lower.

LESS MARKED

Industry-wide figures showed exports of Swiss watches to China fell 17.5 percent from January to July. They were also down 9.6 percent to Hong Kong, the biggest market for Swiss watches, but the slowdown was less marked in July than in the first half of the year.

Sales in Europe and the Middle East were up 10 percent, down from 19 percent a year ago, helped by tourist shoppers, while Japan and the Americas both saw sales rise 17 percent, with the first seeing strong domestic consumption and the latter sustained momentum of jewellery sales, Richemont said.

The world's second-biggest luxury goods group will hold its annual shareholder meeting in Geneva later on Thursday. It will be the last public appearance of Chairman Johann Rupert before he heads off for a one-year sabbatical.

Notenstein analysts said their high valuation did not allow for any weakness and they expected peer Swatch Group to also come under pressure on Thursday.

Analysts at Zuercher Kantonalbank downgraded Richemont, saying they expected the shares to take a breather.

Richemont shares are trading at 17.4 times forward earnings, at a premium to Swatch Group on 16 times, but at a small discount to LVMH on 17.6 times, according to Thomson Reuters data.

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