While clever analysts might have expected good results from Richemont, and fund managers were no doubt hoping for them, it was still nice to see an increase of 139% in earnings per share.
“Sales increased in all businesses in most of the regions,” notes Johann Rupert, chairman of Richemont, the second largest supplier of luxury goods to the discerning and wealthy in the world.
Sales increased by 41% in the American region, 36% in Europe, and 20% in the Asia Pacific countries, with Japan notching up an increase of 17% and the Middle East and Asia some 9%.
The figures are breathtaking: sales increased by a total of 33% in rand terms to nearly R223 billion in the year to March 2019, with profit of more than R44 billion. Richemont always publishes a summary of its results for the pleasure of its large South African shareholder base.
In euro terms, sales increased by 27% to €13.99 billion and operating profit 5% to €1.94 billion. Earnings per share (EPS) increased to €4.93 in the year to March, from €2.16 the year prior.
Earnings per share on the depository receipts listed on the JSE share increased to R7.84 with headline EPS of R4.13.
The difference in EPS and headline EPS comes down to the accounting of Richemont’s acquisition of the outstanding shares and subsequent revaluation of its interest in Net-a-Porter.
Richemont finalised the acquisition of 100% of the online shopping portals of the Yoox Net-a-Porter (YNAP) group in April, and included the figures in its results from May onwards.
Second-hand (but not cheap) watches
It also acquired Watchfinder & Co, an online market for pre-owned luxury watches, accounting for the acquisition from June. Watchfinder is where horophiles can search for an exclusive watch to add to their collection, or those with a slightly limited budget can buy a Rolex, Omega or Breitling.
Currently there are 5 330 watches listed, representing 67 luxury brands. Needless to say, Casio and Hallmark watches are not listed.
Listings include a beautiful seven-year-old Rolex Daytona in gold for ₤19 250 (around R353 000) and a two-year-old Omega Planet Ocean for ₤3 820 (around R70 000). Watchfinder offers financing to UK residents who might not have the cash, up to a maximum of ₤25 000 (R460 000).
New, and costing a pretty penny
Yoox offers clothing and related fashion items for men, women and children, such as a pair of Fila sneakers at €153, while Net-a-Porter sells the really upmarket brands. A fetching Saint Laurent shoulder bag in leather is advertised at ₤1 921 (more than R35 000) while a Net-a-Porter Beach Escape Beauty Kit with “nine essential products you need” when going to the beach is available for ₤91 (R1 670).
Rupert says in his commentary that sales by the online businesses increased by double digits, and accounted for 16% of Richemont’s total sales during the year. Online sales figures are actually larger as the online sales were not included for the full 12 months.
The acquisition of the extra 51% of YNAP resulted in a profit on the revaluation of Richemont’s interests in the businesses by nearly €1.38 billion – taking profit before tax up to €3.17 billion.
Healthy cash flow
The cash flow statement shows that Richemont is successful at turning sales into cash, with net cash flow from operations amounting to more than €2 billion. This is lower than in the previous year, mainly due to an increase in inventory – of €278 million – to ensure that the new online businesses have enough desirable items to ship.
This will be key to the next set of results. Rupert says Richemont is starting to see the benefits of recent initiatives targeting the improvement of its distribution network, the rightsizing of watch inventories at its multi-brand retail partners, and the adjustment of supply to match demand.
Share still has some way to go
The current share price of R103 on the JSE is 17% higher than its 12-month low of R88.68, but still 23% lower than the high of R135 in September last year.
The current price reflects a price-earnings ratio of a high 24.9 times, calculated using the headline EPS. Or maybe it is not that high if one looks at the international PE ratio based on EPS – which puts it on a more reasonable 13.1 times.
The share price of Richemont’s competitor, Moët Hennessy Louis Vuitton, which reported sales of €12.5 billion in the year to December 2018, is on a PE of 26.5 times.