There aren’t many retailers growing the top-line by +29% that Richemont pre-announced this morning, which is even more impressive given last year’s compares, but the fact of the matter is that sales are slowing on the margin. Here some additional takeaways:
- Take a look at the SIGMA. Sales growth was impressive up +29% on top of +37% growth in the same period last year. While underlying 2Yr sales trends climbed steadily higher across all four regions, Europe was the only region to post sequentially stronger yy sales growth. Incidentally, Europe is also the company’s largest region accounting for ~38% of total sales.
- While the pre-announcement only highlighted sales trends, keep in mind that input costs (Gold, Silver, etc.) have headed sharply higher up 40%-50% over the last 6-months. With a typical 3-4 month lag embedded in product costs, inventory value is headed higher at a faster rate than top-line sales trends suggest and is likely to result in continued contraction in the sales/inventory spread as well as margins.
- Importantly, the preannouncement captures the first five months of F12 through August – a month that we feel strongly has seen a meaningful slowdown in high end spending in addition to seeing a backup of diamond inventory in parts of the supply chain.
- Don’t mistake this as a negative call on Richemont. As was the case with TIF (which raised prices on its engagement ring business by 20%, which alone is 20% of sales) there are company-specific factors that might allow Richemont to wade through any kind of slowdown. But the fact is that this is yet another nugget related to the high-end consumer that we’d call ‘consistently inconsistent, ’ which is a negative divergence from the across-the-board strength we’re accustomed to seeing.