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Richemont expects profit jump as trading improves

ZURICH, Oct 17 (Reuters) – Cartier owner Richemont said it expects an 80 percent increase in net profit for the six months ended Sept. 30 after demand for luxury watches picked up.

Swiss watchmakers are recovering from a severe downturn in demand, mainly due to a collapse of the Hong Kong market that had prompted the world’s second-biggest luxury group to buy back excess inventory of unsold watches and cut jobs and replace almost all its brand chiefs.

But Richemont, whose other brands include Vacheron Constantin and Piaget, said on Tuesday trading had improved, with constant currency sales rising 12 percent in the six-month period and by 10 percent on a reported basis, compared with a year earlier.

Operating profit is likely to rise 45 percent, reflecting the non-recurrence of the exceptional inventory buybacks in the prior year period, improved trading performance and the positive net impact of currency movements, Richemont said in a statement.

The positive profit statement signals an even better than expected margin improvement, Vontobel analyst Rene Weber said in a note, reiterating a “buy” rating on the stock.

“We expected a margin increase of 420 basis points, but now it is even at 500 basis points which will be mainly driven by the most important earnings contributor, Jewellery Maisons Cartier and Van Cleef & Arpels, which was impacted last year from watch buybacks at Cartier,” Weber said.

Exane BNP Paribas’ Luca Solca, who has a “neutral” rating on Richemont, said he expected “limited positive support from this confirmation – especially as no further top-line growth acceleration seems apparent”.

Shares in the company were indicated to open 1.7 percent higher based on pre-market indications. Richemont shares have already risen more than 31 pct this year on expectations of a recovery.

The company is due to report half-year results on Nov. 10.

(Reporting by John Revill and Silke Koltrowitz, editing by Louise Heavens)

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