Compagnie Financiere Richemont (CFRUY)  

Richemont, Hermes Warn of Weakness in Luxury Goods Sector

Jack Duffy | FlashRatings | Wednesday, September 14, 2016 1:51 PM EDT
Luxury goods makers Richemont (CFRUY) and Hermes forecast slower sales and lower profits on Wednesday as weakening demand from China and a drop in tourism in Europe continues to weigh on high-end spending.

Richemont, which owns Cartier, Dunhill and other brands, said operating profit for the six months ending in September would probably fall by 45% from a year earlier. Hermes said profit in the second half of the year would be lower than in the first half and that it was abandoning a target of 8% annual sales growth.

“There is a lot of uncertainty around the world and the rigidity of written guidance means we are less flexible,” Hermes Chief Executive Axel Dumas said. Richemont, which has been scaling back production of watch brands including Vacheron Constantin, will have to “slim down into the real demand of the market,” Chairman Johann Rupert said.
Richemont has been hit particularly hard by the collapse of watch sales in Hong Kong, following Chinese government anti-corruption measures, including the giving of high-end gifts in return for favors.
Analysts said the warnings from two of the luxury goods sector’s leading lights suggested the problems for the industry, especially in Asia, are set to continue.

“The warnings show that macro and geopolitical uncertainties put near-term volume growth in question,” Zuzanna Pusz, an analyst at Berenberg Bank, told Bloomberg News. “The challenges facing the luxury industry are not over yet.”

Hermes shares fell 8.8% in Paris, the biggest drop in more than six years, while Richemont shares ended 3.9% lower in Switzerland.