Richemont, the Swiss-based global luxury goods company controlled by Johann Rupert, soared more than 10% on the JSE on Thursday after its quarterly sales numbers impressed the market.
The surge in the share price, the biggest since November 2022, equated to a gain of R135bn in its market cap. To put that into perspective, the day’s gain equalled double the entire market cap of Woolworths.
Its outperformance also helped the JSE shake some of its recent steep losses. With a market cap of R1.37-trillion, Richemont is one of the biggest stocks on the local market.
Sasfin Wealth senior equity analyst Alec Abraham said in a note that while the quarterly sales update was ahead of market forecasts, the report also assuaged concerns about the sharp slowdown in the luxury goods market.
“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% per annum from the extraordinary above 20% growth since the pandemic, and b) the enormously underwhelming post-lockdown Chinese rebound.”
Global luxury goods stocks surged in early 2023 when China scrapped the remainder of its Covid-19 lockdowns but subsequently cooled when it became apparent that the world’s second biggest economy was losing momentum.
Before the pandemic, Chinese nationals accounted for more than half of the growth in luxury spend, both in mainland China and tourist spending in Europe, according to Abraham. “The ‘rebound’ was disappointing in both of these locations,” he said.
The owner of brands such as Cartier and Mont Blanc painted a mixed picture of the luxury sector in its latest results on Thursday, reporting a sales decline in Europe but a big increase in China.
Richemont said sales in constant currencies, which remove foreign exchange fluctuations, fell 3% in Europe as higher sales to Chinese tourists and domestic customers failed to compensate for lower spending by travellers generally, particularly those from the US.
Sales increased 25% in China, including Hong Kong and Macau, the company said, countering concerns about a slowdown in the region as its economy cools.
With currency effects removed, Richemont’s sales increased by 8% in the three months to December 31, better than the 5% rise in the previous three months but lower than the 19% rise in the April to June period.
The luxury market has been buffeted in recent months by persistently high inflation and high interest rates which increased mortgage payments in the US.
Despite what Richemont described as an uncertain economic and geopolitical environment, the company’s jewellery business — which also includes Van Cleef & Arpels — continued to do well, with sales up 12%.
Kepler Cheuvreux analyst Jon Cox described the results as a “solid print”.
“Are we out of the woods for luxury? Not by a long shot, and the first half of 2024 is likely to be tricky,” he said.
“However, I would be loath to bet against the sector given its GDP multiplier characteristics, strong barriers to entry and where ‘Made in Europe’ is actually a strength and competitive advantage.”
With Reuters
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