Richemont share price down, April sales slide on Forex volatility

Compagnie Financiere Richemont SA said sales unexpectedly tumbled in April as retailers delayed orders ahead of price cuts in markets tied to the US dollar, while full-year net profit fell by more than a third due to downbeat performance and losses on non-cash investments.

The owner of the Cartier, Piaget and Montblanc brands said sales, excluding currency shifts, fell 8% last month, compared to analysts forecasts for 2.8% growth, sending the companys shares falling 3.7% at a point on Friday, before partially recovering afterwards.

However, Chairman Johann Rupert said on a call with reporters that orders from retailers saw an improvement in the first two weeks of May and Aprils downbeat deliveries shouldnt be extrapolated to the rest of the year. The company is looking to the future positively, he added.

Richemont reported an expected 35% drop in full-year net profit to €1.334 billion, which was driven by previously announced losses on financial instruments it had bought to deal with currency fluctuations. Sales rose 4% to €10.41 billion and were solid in the Western Hemisphere and Middle-East, but the situation proved difficult in most Asian markets. Shipments in Asia, excluding Japan, slid 1% during the year ended March 31st, while sales in Europe and the Americas increased, by 6% and 13%, respectively.

Sharp currency movements have negatively impacted luxury goods companies over the past year by forcing them to continuously adjust local prices in order to maintain even price levels around the world. Moreover, currency volatility creates opportunities for gray markets to thrive, particularly in Asia, where many sellers buy products in Europe to take advantage of the price differentials.

Richemont said it raised prices in Europe and reduced them in dollar markets, some in Asia, and will continue the process of readjustment, where appropriate, to reflect the new exchange rate environment. Two of the most important markets for luxury goods – Hong Kong and Macau, remain particularly difficult, according to the statement.

Richemont also said its costs have soared due to the sharp appreciation of the franc since January following the Swiss National Banks decision to remove a cap of its value against the euro. The luxury goods maker keeps its books in euros, while most of its costs are denominated in francs. The removal of the cap resulted in a €686 million loss, the company said, mainly due to losses on financial investments and the declining value of foreign exchange contracts.

Moving employees out of the country is not an alternative, the company said, adding that it was implementing cost cutting measures and that top executives had taken a pay cut to set an example and help them negotiate salary readjustments with staff.

“We’ve got to get on with life,” Mr. Rupert said. “We survived it before and I think well survive it again. Switzerland is still a wonderful place to do business.”

The company did not give an exact full-year guidance but projected a gross margin of around 65% for the fiscal year through March 2016, compared to 66.1% last year.

Compagnie Financiere Richemont SA traded 1.55% lower at CHF 85.50 per share at 09:59 GMT in Zurich, marking a one-year drop of 8.51%. The company is valued at CHF 45.40 billion.