The overall revenue outcome of +8% in constant currency. While this result was a slightly ahead of consensus expectations, we believe it was well ahead of what was ‘feared’ in the context of:
a) Market sentiment around the luxury market normalisation to long‑term average growth of 4-6% p.a. from the extraordinary above 20% growth since the pandemic, and
b) The enormously underwhelming post-lockdown Chinese rebound. This latter point weighed heavily as pre-pandemic Chinese nationals accounted for more than half of the growth in luxury spend, both in mainland China and tourist spending in Europe. The ‘rebound’ was disappointing in both of these locations.
Notwithstanding the robust revenue outcome, we believe it belies the underlying moderating trend in luxury spend and was flattered by the low base in the prior year, particularly in China and United States.
Regionally, revenue grew +13% in constant currency in the Asia Pacific region (including China) and +8% in the Americas. Base effects also explain the apparent weakness in Europe (-3%), which is not really disappointing when see against the very high base in the prior year, which saw an influx of American tourists in Europe taking advantage of US dollar strength at the time.
From a product category perspective, the jewellery maisons recorded the highest revenue growth (+12% in constant currency), benefitting from the tailwinds of:
a) Increasing penetration of branded jewellery in the fragmented and largely unbranded jewellery segment, and
b) Richemont’s dominant position in the high jewellery space with its exposure to the resilient very high net worth clientele.
In line with the declining pricing trend seem in recent quarters in the secondary watch market, revenue at Richemont’s Specialist Watchmakers grew modestly (+3% in constant currency).
In this result the online channel (-5%), which houses the secondary luxury watch marketplace, WatchFinder & Co, continued its underperformance. This underperformance would likely have been greater had it included Yoox Net-a-Porter (YNAP), which is excluded as it is an asset held for sale. The failed sale of YNAP to third-party luxury marketplace, Farfetch, presents Richemont with the prospect of likely write-offs and the question of what to do with YNAP. Late in 2023 the effectively bankrupt Farfetch was rescued by the e-commerce retail platform operator, Coupang. With a highly unlikely return to pandemic-peak prospects and valuations of online third-party luxury platforms, a listing or a sale of YNAP appear improbable.
Sasfin Wealth remains a holder of Richemont in our model portfolios on the strength of the resilience and performance of the luxury sector, the company’s dominance in the high jewellery segment, the quality of the business and strong cash-flush balance sheet.