Richemont unconvincing

Richemont has published its results for its second fiscal quarter (ending September). Sales were up 5% in local currencies, while the consensus was for higher growth (7%). Sales were most disappointing in Europe, due to lower tourism. The Group President noted that growth decelerated in the second quarter as inflation, the economic slowdown and geopolitical tensions began to weigh on customer morale.

In terms of profitability, the luxury goods company reported an EBIT margin of 26.0%, again below consensus expectations (27.5%). However, adjusted for currency effects, the margin would have been 28.5%, an all-time high.

From a cash-flow point of view, the company had issued warrants in 2020 when it reduced its dividend. Between November 20 and 22, 67 warrants will entitle the holder to purchase one new Richemont share at a price of CHF 67. Richemont would have enough cash on its balance sheet to counter the dilution of these warrants (3%), but the Group has decided not to do so. As a result, it will receive an additional CHF 1.15 billion in cash, on top of the CHF 5.8 billion in net cash already on the balance sheet. Richemont may well make an acquisition in the near future, which does not necessarily please the market, which penalized the share with a sharp drop last week (-5.1%).