Zurich: Swiss luxury goods group Richemont posted a better than expected 11% rise in first-half net profit but said turbulence in the financial markets had started to hit demand in October.
Net profit rose to 543 million euros ($678.2 million), ahead of the average estimate of 511 million euros in a Reuters poll of 15 analysts, the group said on Friday.
But Richemont, the world’s largest luxury goods group behind France’s LVMH, said sales in October rose 1.6% from the year-ago period as the turmoil hit demand. Sales fell 2% at constant exchange rates.
“The largest decline was seen in the Americas region. Although Asian markets also continued to grow at a double-digit rate, Europe also registered a decline despite strong sales to non-European customers,” the group said.
The group, which is controlled by South Africa’s Rupert family also said sales in Japan were below the prior year in yen terms but showed growth on conversion into euros.
“This a good, strong set of numbers for the first-half of the year. But the outlook is much more cautious, with sales down 2% in constant currencies in October,” said Kepler Capital Markets analyst Jon Cox.
“This is probably indicative of what will happen in the coming quarters,” he said.
“I don’t think there will be a collapse in profitability as there was in the last downturn. But I do expect to see weaker demand. This is likely to be the worst downturn in two or three decades so I don’t believe that high-end brands will be able to hold up. I expect tough times ahead,” Cox said.
The outlook for luxury goods groups is growing increasingly gloomy as consumers rein in their spending, scared by signs the financial crisis is spilling over to the wider economy.
Last week, Paris-based European luxury group Hermes cut its sales growth target and said trading had worsened in October, while on Thursday Italy’s Bulgari reported a big fall in third-quarter profit and said it couldn’t make a forecast for 2009.
Analysts have predicted Swiss watchmakers would suffer their first significant slowdown in half a decade in 2008 and that 2009 would be even worse.
Revenue for the first half at the seller of Cartier jewellery and high-end watch brands such as Vacheron Constantin, rose 10% to 2.8 billion euros, boosted by demand in Europe and Asia Pacific regions.
Richemont trades at around eight times expected 2009 earnings, a slight discount to LVMH, which is trading at around nine times, according to Reuters data.