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Cartier owner Richemont signals Tiffany bid is unlikely

Corinne Gretler

Bloomberg

 /  Sat, November 9, 2019  /  09:00 am
Cartier owner Richemont signals Tiffany bid is unlikely

Tiffany & Co store at Times Square, Russell Street, Hong Kong (Shutterstock/Colin Hui)

Richemont signaled it’s inclined to focus on expanding its own jewelry brands rather than start a bidding war with rival LVMH for Tiffany & Co. And the latest numbers show the Swiss watch and luxury company has some work to do.

The stock fell as much as 5.8 percent after the Cartier owner reported weaker-than-expected earnings and a slowdown in second-quarter revenue, hit by Hong Kong protests and investments in e-commerce. Richemont isn’t actively defining acquisition targets, Chief Financial Officer Burkhart Grund said Friday on a call with reporters.

Richemont risks being overshadowed by LVMH in jewelry if the French rival succeeds with its attempt to buy Tiffany. The Louis Vuitton owner, which offered $14.5 billion for Tiffany, owns 75 labels ranging from wine and spirits to fashion and perfume. Its market value has almost quadrupled over the past eight years to more than $220 billion, towering over the $43 billion value of Richemont. Investors consider LVMH could rejuvenate Tiffany the way it did with Bulgari, a brand it bought in 2011.

“Cartier is seeing increased competition from players like Bulgari,” wrote Luca Solca, an analyst at Sanford C. Bernstein. “A stronger Tiffany could add to the pressure.”

Richemont’s market value is little changed from where it was five years ago, as growth has been held back by its bigger exposure to the boom-and-bust cycle of the Swiss watch market. About half of Richemont’s 20 brands are linked to timepieces.

Its acquisition targets have been much more modest this year. In September, Richemont bought Buccellati for 230 million euros ($254 million), adding the Italian brand to its jewelry labels, which include Van Cleef & Arpels.

“When you have three of the best names in the jewelry industry, we prefer to focus on our strengths,” Grund said. He declined to comment on Tiffany directly.

Most analysts say the company, with a 1.8 billion-euro cash position, would stretch to raise funds if it were to counterbid for Tiffany. Richemont has never sold stock to fund an acquisition, the CFO said, declining further comment. He said Richemont is “obviously” however open to M&A, as it always has been.

Read also: Tiffany likely to play hard to get as LVMH awaits answer

Richemont’s sales fell more than 10 percent in Hong Kong, where as much as a tenth of the world’s luxury goods are bought because they are usually a bit cheaper there than in mainland China. The Vacheron Constantin owner said its first-half operating margin shrank for a second year as investments in e-commerce sapped profitability.

Hong Kong contributed 8 percent of total sales, down from 11 percent, CFO Grund said. In the longer term, the city may lose its ranking as the biggest export destination for timepieces as the price differential with the mainland diminishes and demand increases in the U.S. and Japan. Richemont won’t abandon Hong Kong, where it has been trying to renegotiate leases to cut costs, Grund said.

Richemont’s operating profit lagged behind analysts’ estimates on investments in e-commerce. In September, the company set up a joint venture with Chinese online giant Alibaba, which should help fashion brands such as Chloe, according to Chief Executive Officer Jerome Lambert.

Jewelry has been leading Richemont’s sales growth in recent years as watch retailers have had to clear out a glut of unsold timepieces. However, profitability at Cartier and Van Cleef contracted as Richemont boosted marketing and renovated stores. Earnings from Swiss watches declined as Richemont becomes more selective as to whom it sells timepieces to make them more exclusive.