Richemont expects first-half profit to fall around 45 percent

Swiss luxury goods group Richemont said it expects first-half profit to fall around 45 percent after sales declined 13 percent in constant currencies in the five months to August as it was forced to buy back stock in the face of weak Asia demand.

“We are of the view that the current negative environment as a whole is unlikely to reverse in the short term,” Richemont said in a statement on Wednesday ahead of its annual general meeting in the city.

Swiss watchmakers are grappling with dwindling sales in their biggest market, Hong Kong, where retailers sit on piles of unsold watches, and fewer tourists shopping in European luxury capitals, such as Paris, following Islamist attacks.

Sales at Richemont fell 14 percent without adjusting for foreign exchange fluctuations, more than the 11.3 percent decline forecast by analysts in a Reuters poll. Constant currency sales fell 13 percent, worse than expectations for a 10.4 percent drop.

Richemont said low tourist activity hit sales in Europe, particularly France, while sales in Japan suffered from high comparable figures and a strong yen. UK sales benefited from the fall in the pound following the EU referendum in June.

“There are initial signs that a watches sell-out has found a trough,” said Luca Solca, analyst at Exane BNP Paribas, adding the first-half profit guidance was slightly ahead of his expectations.

Swiss watch exports fell 11.1 percent during the first seven months of 2016, on top of a 3.3 percent decline last year.

Watchmakers have reacted to the decline by offering more affordable watches, as the precious-metal watches that used to drive growth were hit by anti-graft measures in China. Richemont also cut some jobs and bought back inventory from Hong Kong retailers.

Richemont shares have lost 17 percent of their value so far this year, on top of an almost 19 percent drop last year. They trade at 18.4 times forward earnings, in line with Swatch Group.