Richemont shares tumble

Cape Town/Johannesburg - Shares in luxury brands conglomerate Richemont finished sharply lower on the JSE on Monday after a releasing a downbeat trading update for the quarter ending December 2008.

Richemont shares - which had already shifted lower ahead of the trading update last week - shed another 6.5% on Monday to finish the day at 1505c. Trade volumes were robust with shares worth more than R230m changing hands on the JSE.

Richemont chairman Johann Rupert said that since October "dramatic repercussions" from the global financial crisis had seen demand for luxury goods falling dramatically. "Richemont is currently facing the toughest market conditions since its formation 20 years ago."

The trading update showed Richemont's sales falling a hefty 12% to €1,55bn for the fourth quarter of 2008 - which includes the traditionally strong holiday trading period.

While the sales trend worsened across the board over the quarter it was Richemont's poor sales performance in the USA (down 24% in euro terms in December) that might shake investor sentiment. The only positive glimmer was that markets in the Asia Pacific region (25% of Richemont's revenue line) and Japan managed to notch up modest sales growth at actual exchange rates (rather than constant exchange rates).

Richemont's sales in mainland China increased by 24% at constant exchange rates.

The category breakdown saw sales in jewellery slipping 12% to €800m and watch sales dropping 11% to €404m. The worst hit was writing instruments (which include the well known Montblanc brand), which plunged 17% to €187m.

Cumulative sales for Richemont for the nine months to end December 2008 are up 5% to €4,2bn.

Rupert said given the current economic climate and prevailing uncertainties Richemont saw no cause for optimism. "We must assume that there will be no significant recovery in the foreseeable future and plan accordingly to cope with this situation."

Rupert reminded shareholders that Richmont had acted conservatively and maintained a strong balance sheet along with maisons (brands) that have withstood several depressions and wars over the centuries.

Analysts, however, were not too perturbed at events at Richemont.

Delphine Govender, a director at Allan Gray Investments, did not expect prices to keep falling dramatically. "The year to date has been in line with expectations. No-one can say they are surprised by this.

She said Rupert had already warned in 2006 that things would get "heated". "The luxury goods market is cyclical and goes through ups and downs. There's not much management can do but wait it out."

Afrifocus Securities research analyst Rey Wium described the sudden fall in luxury good prices as "a total shock to the system".

But he remained confident that Richemont would do everything in its power to cut costs and maintain its strong brands. "Everything that Richemont can control, they are controlling."

Wium reckoned Richemont would recover in 2011.

- Fin24.com