2023-05-16 10:07:29 ET
Summary
- Thanks to the double-digit increase in all divisions, the Swiss giant reached all-time highs in sales.
- Profits at €301 million were limited by YNAP one-off charges.
- Vacheron Constantin crossed the €1 billion milestone in sales.
In our last publication called ' Richemont (CFRHF)(CFRUY) Could Benefit From A China Restart ', updating our internal estimates, we were forecasting a total turnover of €19.6 billion for the full year, with a plus 12% at the constant exchange rates and a core EBIT at €4.80 billion (confirming a 28% up versus the prior year). Looking at the financial data discussed last week, the company confirmed our forecast on sales and (once again) raised the bar both at the operational level as well as in the shareholders' remuneration.
Richemont 2023 Financials in a Snap
Source: Richemont Fiscal Year 2023 press release
Q1 update
Richemont closed the 2023 financial year reaching all-time highs. In the fiscal year that ended in March, all business areas of the Swiss luxury conglomerate generated an increase in sales and profits, pushing turnover to nearly €20 billion with an increase of 19% on a yearly basis. In particular, Q4 numbers were supported by a sales rebound thanks to APAC recovery following the lifting of COVID-19 and related travel restrictions in mainland China. At the company level, the core EBIT profit reached an all-time high of €5.03 billion and the margin grew further. In detail, EBIT increased by 34% and thanks to well-controlled working capital, operating cash flow activities reached €4.5 billion. Despite this positive result, the company's profits were capped at €301 million due to the €3.6 billion loss recorded by discontinued operations. This was mainly due to the non-monetary charge of €3.4 billion in Ynap's net assets transfer. However, all business areas, distribution channels, and geographical areas showed an improvement over the past twelve months. As a reminder, the Ynap acquisition by Farfetch and Alabbar respectively 47.5% and 3.2%, will leave Richemont with an equity stake of 49.3% and 12-13% of the issued share capital. This is still subject to a number of conditions, including obtaining certain antitrust approvals. The transaction's initial phase is expected to close by year-end (2023).
Source: Richemont Fiscal Year 2023 results presentation
This performance was primarily driven by retail, Japan, and Europe, closely followed by the Americas region. Sales in directly operated stores continued to clearly outpace other distribution channels, with the group's revenue contribution rising to 68% and, together with online sales, accounting for almost three-quarters of the total. Double-digit growth across all product categories, with jewelry including Buccellati, Cartier, and Van Cleef & Arpels seeing their combined revenue climb to €13.4 billion and operating profit to €4.7 billion, generating an operating margin of 34.9%. On the other hand, specialist watchmakers recorded a strong performance with total revenues of €3.9 billion and an operating margin improving to 19%. " Over the past 6 years, the brands in this division have undergone a profound evolution of their business model, which has successfully led direct sales to customers to reach 56% of turnover this year ," the CEO explained . He also emphasized that " watchmakers are reaping the rewards of past strategic actions and clear leaders have emerged, notably Vacheron Constantin which has surpassed €1 billion in sales ". The other brands in the group, including fashion houses and accessories, generated a turnover of €2.7 billion with a plus 19%. Montblanc and Chloé have also emerged.
Richemont Operational overview
Conclusion and Valuation
Despite the economic volatility context and political uncertainty, the group chairman Johann Rupert has faith in the Maisons. He said that Richemont is " well positioned to respond to strong demand, driven by a significant recovery in Chinese tourism ". The data just presented are considerably higher than expected with finance costs improved to €314 million and lower net interest expenses to pay. Based on the company's strong performance, significant cash flow generation is expected and there is a solid net cash position of €6.5 billion as of March end. Richemont's board decided to propose the ordinary dividend payment of CHF 2.50 per share A and CHF 0.25 per share B with a hike of 11% compared to last year. In addition, there will be a special dividend of CHF 1 for A share and CHF 0.10 for B share. The special dividend was not included in Wall Street calculation, and the company's shares were at an all-time high of over CHF 157. Since 2023, the company has gained 25%, and over three years the performance was at a plus 168%. Last time, we increased our target price to CHF 150 per share, and today we decided to leave unchanged our forecasted numbers, confirming our neutral valuation . This is based on a 2023 20x Price Earning estimate. As a reminder, in 2022, the company underperformed the sector and there was a 20% Price Earning discount that today has vanished. Here at the Lab, we missed an opportunity in early September when we published a report called ' Richemont Won The First Battle' . However, corporate governance issues could not be underestimated.
Richemont is raising the bar on cap. distribution
For further details see:
Richemont: Another Set Of Solid Results