Cartier’s Owner lacks polish for a Tiffany Counterbid

Weak first-half profits suggest Swiss jeweller Richemont has its hands full fixing its existing brands.

By guest author Carol Ryan from Wall Street Journal

Tiffany &Co. TIF 0.54% ’s board, currently sizing up a takeover approach from LVMH Moët Hennessy Louis Vuitton, LVMUY 0.04% can probably rule out a counterbid from the owner of the Cartier jewellery empire.

Cie. Financière Richemont, the world’s fourth-largest luxury company by market value, said Friday that operating margins fell to 15.7 % in the six months through September. That is down from 16.6% for the same period of 2018 and one of the lowest margins in the European luxury sector. Investors sent its stock down 5 % in early trading.

Watchfinder & Co and Yoox Net-a-Porter, online retailers that Richemont bought in 2018, are boosting sales growth but sapping profitability. YNAP in particular needs heavy investment in technology and marketing now that its websites, which pioneered the sale of luxury clothing and handbags online, face stiff competition from younger rivals such as Farfetch and brands’ own virtual stores.

Richemont has most to lose if LVMH’s offer for Tiffany is accepted. The Swiss company generates around 80 % of total operating profit from two jewelry brands: Cartier and Van Cleef & Arpels. Today, Tiffany isn’t in their league in terms of price: The U.S. brand makes an estimated 40% of sales from cheaper jewelry ranges, according to UBS. But LVMH would take the brand upmarket to compete with more exclusive jewelry houses.

From Richemont’s jewellery collection (caption courtesy by Richemont)

Tiffany investors should not expect a counteroffer though. Richemont has a strong balance sheet, with EUR 1.8 billion of net cash, but this is low by its usual standards following last year’s cash-hungry e-commerce acquisitions. The company’s finance chief also said the company is unlikely to change its preference for not using its shares to fund deals.

Given its weak performance, Richemont will likely be too busy polishing its earlier purchases to get into a new bidding war.

Richemont’s sales grew by 6 % at constant exchange rates in the first half, but demand slowed in several key regions in the second quarter. One factor is the company’s heavy exposure to political tensions in Hong Kong, which are keeping away big spenders from mainland China. And, its jewellery brands—the main attraction of the stock to investors—showed signs of a slowdown too. The division increased sales by 7 % in the first quarter of the year, but grew at a more muted low single-digit clip in the latest quarter, according to Citi estimates.

Richemont owns several of the world’s leading companies in the field of luxury goods, with particular strengths in jewellery, watches and writing instruments.

Our Maisons™ encompass several of the most prestigious names in the luxury industry including Cartier, Van Cleef & Arpels, IWC Schaffhausen, Jaeger-LeCoultre, Panerai, Piaget, Vacheron Constantin, Montblanc, dunhill and Chloé. Richemont also owns leading online distributors YOOX NET-A-PORTER GROUP and Watchfinder & Co.

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