January 29, 2023

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Luxury group Richemont’s sales miss forecasts after China sales plunge By Reuters

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© Reuters. FILE PHOTO: Jewellery is displayed at a Cartier store on Place Vendome in Paris, France, July 2, 2019. REUTERS/Regis Duvignau/File Photo/File Photo

By John Revill

ZURICH (Reuters) -Richemont reported higher quarterly sales on Wednesday as tourists returned to Europe and Japan, but the luxury group missed market estimates after sales in China plunged by almost a quarter.

American tourists took advantage of the stronger dollar to buy their Cartier jewellery and Swiss watches outside the United States in the December quarter, leading to a sharp rise in sales in Europe and Japan.

But the mainland Chinese market – which accounts for about a fifth of the group’s sales according to Zuercher Kantonalbank estimates – struggled as COVID-19 cases surged during the period, Richemont said.

Sales in mainland China fell 24% in constant currency terms as customer traffic dwindled and staff were not available, leading to a reduction of boutique hours or temporary closures of sales points, the company said.

Overall, Richemont’s sales rose 8% to 5.4 billion euros ($5.82 billion) in the three months to the end of December, up from 4.98 billion euros a year earlier.

The figure missed the 5.67 billion euros forecast by analysts. When currency movements were excluded, the company’s sales increased by 5%.

Investors reacted negatively to the sales update, with Richemont stock indicated 4.9% lower in pre-market activity, though analysts said the weak performance in China was likely to be a temporary blip.

The COVID wave has peaked in major Chinese cities, leading to store reopenings, a rise in customer traffic and expectations of a strong rebound before the Lunar New Year holidays, a Richemont spokesperson said on Wednesday.

“The impact from China is massive, but we see it as temporary,” Bank Vontobel analyst Jean-Philippe Bertschy said. “The catch-up from Chinese consumers will come as strong as sales decelerated in 3Q, as they were able to save money during the lockdowns.”

In Japan, sales increased by 30% during the quarter, aided by “solid” domestic sales and a gradual return of tourism. The lifting of COVID restrictions mid-October and a comparatively weaker yen also helped, Richemont said.

In Europe sales increased by 17% helped by strong local demand and returning tourists, particularly from the Middle East and the United States.

However, the Asia-Pacific region saw overall sales fall by 7%, the company said.

($1 = 0.9276 euros)