Richemont cautious on luxury goods industry outlook

ZURICH Fri Nov 11, 2011 8:43am EST

ZURICH (Reuters) - Richemont (CFR.VX), the maker of Cartier jewelry and Jaeger-LeCoultre watches, struck a cautious note for the luxury goods industry outlook as growth rates are starting to ease from the strong first-half performance.

Red-hot demand in Asia has helped to shield the luxury goods sector from slowing demand in mature markets so far, but investors are bracing themselves for weaker growth as worries about the general economic outlook intensify.

October sales at the world's second biggest luxury goods group still rose 26 percent at constant exchange rates, but this was down from 36 percent between April and September in a sign consumers are turning more hesitant about treating themselves to pricey timepieces.

"For the second half of the financial year, we face both the impact of global economic problems on the luxury goods industry in general and demanding comparative figures," Chairman Johann Rupert said in a statement on Friday.

In a conference call, he told journalists it was extraordinarily difficult to say what was going to happen.

"Europe and the United States will be in a mess for a considerable period of time," he said. "We're seeing increasing tourism but sluggish domestic demand in Europe," he said, adding that the United States had a tendency to fix their problems more quickly.

Swatch Group (UHR.VX) chief Nick Hayek told Reuters earlier this week he is expecting Swiss watch exports to only grow 5-10 percent next year, down from almost 20 percent so far this year.

Richemont shares were flat at 1052 GMT (5:52 a.m. ET), underperforming a 0.3 percent rise in the European sector index .SXQP.

Vontobel analyst Rene Weber said a slowdown was expected for the coming months but he was keeping his "Buy" rating on the stock given the attractive valuation.

Richemont shares, which have fallen about 13 percent so far this year, are trading at 14.1 times estimated March 2013 earnings, at a premium to Swatch Group at 13.5 times estimated 2012 earnings, but at a discount to LVMH (LVMH.PA) at 16.5 times.

AFFLUENT ASIA

Luxury goods makers see buoyant growth in the Asia-Pacific region, where Richemont's sales soared 60 percent in the first half. The Americas region jumped 35 percent and sales in Europe rose 22 percent.

Net profit increased 10 percent to 709 million euros ($963 million), beating forecasts in a Reuters poll.

The group's gross margin slipped to 63.2 percent from 64.8 percent a year ago, but Chief Financial Officer Gary Saage said the group would abstain from further price increases during the holiday season, meaning the margin should stay at this level for the full year ending in April.

Richemont's operating profit margin is expected to be lower in the second half compared to the first six months of its fiscal year due to higher marketing expenses.

Operating profit should, however, rise significantly in 2011/12 versus a year ago, helped by the strong first half.

The group had a net cash position of 2.6 billion euros at the end of September, unchanged from the end of August.

($1 = 0.736 Euros)

(Editing by Hans-Juergen Peters)

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