Thursday 29 September 2016

Warnings from Richemont and Hermes in latest blow to luxury retail market

Corinne Gretler and Thomas Buckley

Published 15/09/2016 | 02:30

Actress Sienna Miller attends the Cartier Fifth Avenue Mansion grand reopening celebration last week in New York. Its parent company, Richemont, said operating profit is set to decline by 45pc
Actress Sienna Miller attends the Cartier Fifth Avenue Mansion grand reopening celebration last week in New York. Its parent company, Richemont, said operating profit is set to decline by 45pc

The crisis in the global luxury-goods industry deepened after Hermes International abandoned a long-standing forecast and Richemont predicted a profit plunge that Chairman Johann Rupert deemed unacceptable.

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Richemont, the maker of Cartier jewellery, said first-half operating profit will probably decline about 45pc and warned it may have to deepen cost cuts. Kelly bag maker Hermes, traditionally among the industry's most resilient companies, scrapped a target for 8pc annual sales growth, replacing it with what it described as "an ambitious goal."

Shares of both companies slid, dragging other luxury stocks down with them. The industry is grappling with another year of waning demand as China's campaign against extravagant spending is compounded by a drop in tourism after terrorist attacks in France and Belgium, a situation Rupert characterised as a "fiasco".

Richemont's revenue slid 13pc, excluding currency shifts, in the five months through August, missing analysts' estimates. "The warnings show that macro and geopolitical uncertainties put near-term volume growth in question," said Zuzanna Pusz, an analyst at Berenberg. "The challenges facing the luxury industry are not over yet."

Hermes shares fell as much as 7.7pc in Paris yesterday, the steepest drop in almost three months, even as first-half profit beat estimates. Prior to yesterday, the stock had gained 24pc this year as other luxury stocks had stagnated or fallen. Richemont slid as much as 4.6pc in Zurich, while Swatch Group fell as much as 3.5pc.

Hermes anticipates earnings will be lower in the second half than the first, chief executive officer Axel Dumas said. (Bloomberg)

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