Apr 22, 2015
Reading time
2 minutes
Download the article
Click here to print
Text size
aA+ aA-

Richemont warns of profit drop on derivative losses

Apr 22, 2015

Cartier-owner Richemont has warned of a sharp downturn in yearly earnings due to a worse-than-expected performance and investment losses on its 5.4 billion euros ($5.8 billion) cash pile, playing down the drop as due to non-cash accounting factors.

However some analysts said there were also signs of an underlying deterioration at the world's No. 2 luxury group, whose shares fell by as much as 2.8 percent before paring losses to trade 0.4 percent lower by 1147 GMT.


The group, which also owns jeweller Van Cleef & Arpels, watchmakers Piaget and IWC as well as several fashion brands, said net profit for the year ended March 31 would drop by 36 percent and also warned that its tax rate for the year would significantly increase.

It said its operating profit for the year was expected to rise 10 percent, including a one-off gain of 226 million euros from the disposal of retail space in New York disclosed at the half-year results.

"Beneath this (10 percent operating profit increase) there is also a 4 to 5 percent worse-than-expected underlying performance in the business ... effectively indicating that the group is warning on its full-year results," Exane BNP Paribas luxury goods analyst Luca Solca said.

Excluding the real estate gain, operating profit would have risen by between 1 and 2 percent, well below consensus expectations of 6 percent, Solca said.

The company told analysts it had made 4 billion worth of investments in euros which translated into Swiss francs represented a loss of around 450 million euros.

It had to make the translation into francs because the entities in which it invested were based in Switzerland, but the losses were purely accounting and non-cash and would not affect its cash reserves, it told analysts.

Nobody at Richemont was available to confirm what the group's investor relations office told analysts by phone following its statement.

Last month, Richemont agreed to sell its online fashion retailer Net-a-Porter (NAP) to Italian rival Yoox in an all-share deal.

While NAP contributed little to the group in terms of profit, it helped boost the group's growth rate.

Richemont said including Net-a-Porter, its full-year sales to March 31 would have increased by 5 percent and by 2 percent at constant currencies, but excluding the online retailer, they rose 4 percent on a reported basis and 1 percent at constant currencies.

The Swiss group reports full-year results on May 22.

The group's profit warning comes after Kering's Gucci posted a bigger than expected drop in first-quarter sales on Tuesday, blaming a transition period as its flagship brand works to regain momentum under a new creative and management duo.

© Thomson Reuters 2023 All rights reserved.