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Richemont FY'18 earnings miss estimates, sending shares lower

Cartier owner Compagnie Financière Richemont SA on May 18 reported full-year earnings for fiscal 2018 that missed expectations due to weaker sales in the wholesale channel and a higher tax bill. Its shares fell 5.7% in late-morning trading.

The Swiss luxury goods company, which has a portfolio of brands that also includes Van Cleef & Arpels, Jaeger-LeCoultre and Montblanc, said net income for the 12 months ended March 31 edged up 1% year over year to €1.22 billion from €1.21 billion, short of the S&P Capital IQ consensus estimate of €1.72 billion.

Diluted EPS increased 1% to €2.16 from €2.14 a year prior, but fell below the S&P Capital IQ consensus estimate of €3.06.

Operating margin climbed 5% to €1.84 billion from €1.76 billion as it gained 20 basis points, or 0.2 percentage points, to reach 16.8% compared to 16.6% at fiscal 2017-end.

Sales rose to €10.98 billion from €10.65 billion, a 3% increase, or 8% at constant currency rates. Richemont's wholesale business, which includes serving franchise partners, saw sales decline 5% to €4.07 billion from €4.26 billion due to watch inventory management issues. It spent €203 million on repurchasing excess inventory from multibrand retail partners. Retail sales increased 8%, or 14% at constant currency, to €6.91 billion from €6.39 billion.

The overall rise in sales was attributed to strong demand for jewelry and watches, particularly in China, Hong Kong, Macau and South Korea. Sales in the Asia-Pacific region excluding Japan jumped 12%, offsetting 3% declines in Europe, the Middle East and Africa, and Japan. In the Americas, sales increased 1% due to demand for clothing and jewelry.

Richemont said Cartier and Van Cleef & Arpels both saw high single-digit growth in sales of jewelry and double-digit growth in watches. Sales of specialist watches, with brands including Baume & Mercier, Piaget and Vacheron Constantin, declined 6%.

The Bellevue-based company said its tax bill rose to €432 million from €360 million.

Its net cash as of March 31 was €5.27 billion, down from €5.79 billion a year ago. The outflow reflected its investment in Swiss travel retailer Dufry AG, in which it has accumulated a 5% stake, and the purchase of investment properties. In March, Richemont launched a voluntary tender offer for the shares it did not already own in Italian online retailer Yoox Net-A-Porter Group SpA in a deal worth up to €2.69 billion.

Richemont hinted at more dealmaking in fiscal 2019. "While Richemont's unique portfolio of maisons and other assets are well-positioned, our long-term approach does not preclude us from targeting strategic investments and divestments, as we have demonstrated over the past year," the company said in a statement.

In late-morning trading in Zurich, the company's shares were down CHF5.60 at CHF93.42.