Richemont finds a new online paradigm
By Marc Hasenfuss - Sep 21st 2018, 08:57
Rupert family-controlled luxury goods conglomerate Richemont remains one of the default options for investors rattled by a ravaged rand, despite a rather demanding market rating.
Not surprisingly, then, Richemont is up around 13% in the year to date on the JSE. But on the Swiss stock exchange, the shares are down a disappointing 10%. In fact, at the time of writing, Richemont’s listed shares had drifted below Sf80 on the Swiss bourse — the lowest level in almost 18 months.
The JSE shows Richemont trading on a trailing earnings multiple of nearly 40, with the forward multiple at a "more modest" early 20s. The group obviously needs some sprightly growth figures to justify that rating.
Richemont’s sales update for the five months to end-August was satisfactory, with most local analysts not too perturbed that the 22% top-line increase in constant currency lagged slightly behind market expectations of around 23.5%.
If the contributions of online sales platform Yoox Net-A-Porter Group (YNAP) and second-hand timepiece dealer Watchfinder.co.uk, which have been consolidated since May and June respectively, are stripped out, Richemont’s sales for the five-month period increased by only 10% at constant exchange rates and by 7% at actual exchange rates.
The detailed Richemont sales figures are always interesting to unpack. The 23% hike in sales in the key Asia Pacific markets to €2.1bn was the standout, though gains in Europe (28% to €1.7bn) and the Americas (42% to €1bn) were also impressive.
But this time the usual drilling down into the geographic spread of sales might be superseded by growing interest in the online sales numbers (especially with the numbers from YNAP and Watchfinder consolidated for the first time).
The official trading update comment about the online sales performance was scanty; attention was concentrated on the traditional luxury business. But the online numbers speak for themselves.
Richemont’s sales by distribution channel showed online sales at €718m, while sales by business area showed online trade at €720m. These figures represent about 13% of five months of sales of roughly €5.7bn.
At first glance this might be a tad disappointing, considering Richemont CFO Burkhart Grund’s remarks earlier this year that the group’s e-commerce sales would grow from 1% to 17% with YNAP on board.
But the full contribution from YNAP, which was previously part-owned by Richemont, was for four months of the five-month trading period, and the considerably smaller Watchfinder contributed for only three months.
It’s probably imprudent to attempt to annualise the online contribution for the six-month or even full-year period, but it seems relatively safe to assume a full-year online sales figure of close to €2bn.
This might equate to 14%-15% of total sales for the full year, and perhaps shift beyond the envisaged 17% mark in the following financial year as Richemont moves more of its own brand bouquet — including Cartier, Montblanc, Lancel, Van Cleef & Arpels, Baume & Mercier and Jaeger-LeCoultre — through e-commerce platforms.
To provide some context to Richemont’s online thrust, it’s worth noting that e-commerce sales are probably already larger on an annualised basis than what the group deems its "Other" division. The "Other" houses Richemont’s fashion brands, writing instruments and leather goods interests.
The upcoming interim results to end-September will be interesting, as it will show just how much of a game-changer the e-commerce thrust will be for Richemont over the longer term.
The appointment to the CEO position of group insider Jérôme Lambert, previously COO, also speaks to the concerted online sales effort at Richemont. Lambert, 49, has led key divisions like Jaeger-LeCoultre and Montblanc and headed the group’s Specialist Watchmakers and fashion and leather businesses.
The CEO position, which was even filled temporarily by chairman Johann Rupert, had been vacant for close on 18 months. Lambert’s appointment has been widely welcomed, with a number of market watchers of the view that the new CEO is more "tuned in" to new market trends in the luxury sector – especially the younger consumers.
Electus Fund Managers co-head Neil Brown says appointing a new CEO has been a good move, especially as the CFO is relatively new to his role.
"However, the executive committee structure means that the heads of Cartier and Van Cleef & Arpels, as well as the CFO, do not report to the new CEO, as they are all ‘equals’. Instead, they all report to [chairman Johann] Rupert and the board. This seems a complicated [arrangement]."
Overall, Richemont looks to be at an interesting juncture. The e-commerce thrust looks promising and certainly scalable, considering that Richemont still has a cash-clad balance sheet.
Richemont played down acquisitions during the most recent results presentation. But niche businesses such as Watchfinder might show the benefits of partnering with a financially muscular group with a broader online platform.
The FM considers that at current levels Richemont offers fair value for long-term investors willing to back a new luxury-brands sales paradigm.
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