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UPDATE 2-Richemont sees tough trading after Hong Kong downturn, attacks curb sales growth

* Sales fall 1 pct in full year, 15 pct in April

* Islamist attacks weigh on European sales

* Group could close stores in China

* Shares fall 2.5 percent (Adds CEO comments, share price)

By Silke Koltrowitz

ZURICH, May 20 (Reuters) - Cartier owner Richemont expects business to remain tough after Islamist attacks in Europe and a downturn in Hong Kong curbed sales growth in the first four months of 2016.

High-end watch makers are grappling with poor demand in Europe, where attacks in Paris and Brussels have deterred tourists, and a downturn in Hong Kong and the United States, two of the world’s biggest luxury markets.

“Headwinds are very strong, especially for watches,” Chief Executive Richard Lepeu told a conference call on Friday. “The situation has really deteriorated since last November. Before that, the growth engine was definitely Europe, which turned negative (after the attacks in Paris).”

Islamist militants killed 130 people in a spate of shootings and suicide bombings in Paris on Nov. 13 last year, and in March, suicide bombers killed 32 people in Brussels.

Full-year sales fell 1 percent at constant currencies to 11.08 billion euros, just below a forecast for 11.15 billion in a Reuters poll. This implied a slowdown in the final quarter. April sales were down 15 percent.

The maker of IWC watches and Van Cleef & Arpels jewellery said Hong Kong and Macau showed no signs of recovery in April. European sales, which had been boosted by tourist shoppers in the first half, turned negative after the Paris attacks, and were still down in April.

Lepeu said the “feel-bad factor” had started to impact the jewellery business, but not to the same extent as in watches.

Many of Richemont’s watches cost tens of thousands of dollars.

“It was expected to be bad but this is probably even worse with basically a more or less perfect storm of nearly all regions struggling and in the watch product particularly,” Kepler Cheuvreux analyst Jon Cox said.

Difficulties in Richemont’s watches business were exacerbated by inventories at retailers, which forced the company to buy back stock. No further job cuts were planned on top of the 500 cut last year, but more stores could close in China, Lepeu said.

Richemont shares were down 2.5 percent by 0916 GMT. They have fallen 15 percent so far this year, and trade at a small discount to rival LVMH and at a premium to Swatch Group.

An initially favourable currency situation, with a weak euro and yen, also turned negative in Richemont’s fiscal year to the end of March.

Net profit jumped by two thirds, to 2.23 billion euros ($2.50 billion), due to non-recurring items.

Richemont proposed a dividend of 1.70 francs per share for 2015/16, up from 1.60 francs last year, and reaffirmed it was committed to increasing it. ($1 = 0.8927 euros) (Editing by Susan Thomas)

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