Luxury/Richemont: Cartier owner shines despite the gloomy outlook

In luxury goods, seeing is believing. So what should Richemont investors make of the caution expressed by boss Johann Rupert at the watches and jewellery specialist’s first-half results on Friday? Not much, to judge by the share price, which rose by a tenth on the day.

It is not surprising that shareholders overlooked the net loss. That resulted from the failed experiment with online retailer Yoox Net-a-Porter, which caused a €2.7bn writedown after YNAP’s sale. They were more focused on impressive sales and margins, which comfortably beat expectations. Jewellery sales grew almost 30 per cent year on year.

Even with the drag from the locked-down Chinese market, global luxury sales this year are expected to grow at more than double the 20-year average of 6.5 per cent, thinks Flavio Cereda at Jefferies. That will doubtless slow. But 2023 growth might be as high as 8 per cent, assuming China starts opening in the summer.

Nonetheless, Rupert is right to warn of volatile times ahead. The core of wealthy luxury buyers seems unlikely to be hit hard. But it is younger, newly acquired marginal buyers who have provided much of the recent growth. They are more exposed to the cost of living crisis.

Valuations in the sector have derated accordingly. They have fallen by about a third since last summer. Richemont, now trading at 19 times 2023 earnings, has followed that trend and is back in line with its pre-pandemic rating.

But big brands have taken significant market share, expanding into new markets and consolidating. In jewellery, where Cartier leads, Richemont’s sales in the first year of the pandemic grew by half to reach €11bn. Analysts’ consensus estimates for the year ending next March put a further €1.5bn on top of that figure.

The YNAP losses will tend to underline Richemont’s natural caution. Yet it has a solid balance sheet. There remains a long-recognised opportunity to boost its presence in the soft luxury market.