A drop in the value of formerly vibrant tech stocks will make it difficult for luxury company Richemont to weed out its most troubled brand, Yoox Net-a-Porter.
On Friday, shares of watch and jewelry maker Cartier, officially known as Compagnie Financière Richemont,
13% off in morning trading. Analysts expect the company’s operating profit for the year to March to be around 10th below 3.8 billion euros, or $4 billion, although this is partly explained by expenses. fees related to the company’s decision to stop selling goods in Russia. But investors also wanted an update on the details of negotiations between Farfetch and YNAP over some kind of tie-up, which didn’t materialize.
Shares of Richemont are among the best performing in the luxury sector in 2021, up 70% year-over-year. The global high-end jewelry market is booming and shareholders expect the company’s operating margins, which are low for a major luxury name, to increase.
They did, but perhaps not enough. Richemont’s profit margin was 17.7%, up 6.5 percentage points from the previous financial year. However, that is still significantly less than the profit margins of around 39% and 27% for handbag maker Hermès and Louis Vuitton owner LVMH respectively.,
Closing this gap further will take longer than expected. Although sales of Richemont’s jewelry brands were strong, the division’s operating profit margin of about 34% was lower than expected. Input costs such as gold and diamonds increased and advertising budgets increased, but the company did not raise prices as sharply as some other luxury brands. Richemont is charging more to offset higher labor costs and exchange rate swings, but not enough to dazzle investors.
The sale of troubled online fashion retailer YNAP should boost Richemont’s stock price. The “online distributor” division, which also includes watch retailer Watchfinder.com, lost €210 million despite major investment. YNAP will continue to burn cash as it changes its operating model from one that owns all of the inventory sold on the site to one that gives brands greater control over sales. in exchange for the discount.
Richemont said late last year that it was in talks with New-York-listed Farfetch. Options being discussed include Farfetch becoming a minority owner of YNAP along with other investors, or some other form of tech partnership. The two have worked together before. Richemont received shares of Farfetch in November 2020 as part of a tripartite joint venture in China with tech giant Alibaba.
However, Farfetch’s stock has plunged as the losing tech names are no longer trendy for investors. Since negotiations between the companies late last year, Farfetch’s market value has dropped from about $16 billion to $3.3 billion today. This is not a great time to commit capital to fund a merger, or even a minority stake in its rival.
Richemont’s lucrative watch and jewelry businesses could be gems of interest to investors. But they also need a complete respite from YNAP and that seems unlikely anytime soon.
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https://www.wsj.com/articles/tech-rout-may-take-the-shine-off-cartiers-owner-11653058128?mod=rss_markets_main Tech Rout May Take the Shine Off Cartier’s Owner