RICHEMONT Group profit below expectations

Restructuring at Baume & Mercier crimped profitability of RICHEMONT Group, the world’s largest jewellery group.  The Richemont Group reported today a net income in the 12 months through March rose 82 % to 1.09 billion euros, missing the 1.19 billion- euro average estimate of 15 analysts.

The maker of Baume & Mercier timepieces reported an operating margin at its specialist watchmaker unit of 21.4 % for the full year, narrower than the 28.8 % posted for the first six months, as higher material costs and the appreciation of the Swiss franc eroded earnings. The company was also hit by the restructuring of Baume & Mercier’s product offering, which hurt sales.

A rising franc cut into gross margin due to the company’s watch manufacturing in Switzerland. The franc was on average 12 percent higher against the euro and 5.2 percent higher against the dollar in Richemont’s past fiscal year.

The company plans to extend its share buyback program by an additional 5 million shares. The company also proposed a 29 percent increase in its dividend payout. Revenue rose 33 % to 6.89 billion euros, boosted by higher sales in the Asia Pacific region, where an increase in the number of millionaires is fuelling demand for high-end goods. Wealthy Chinese consumers own 4.4 luxury watches on average. Richemont said today sales in the Asia-Pacific region rose 48 percent.

The company is going to add 800 jobs in Switzerland to help keep up with demand, which is currently outpacing supply, according to the company. “We are actually facing more demand than we can cope with,” Deputy Chief Executive Officer Richard Lepeu said on a conference call with journalists. About half of the investments will be in manufacturing and infrastructure, with the rest on expanding Richemont’s sales network.

The company would rather invest in its existing brands than make acquisitions as it’s better for shareholders, Rupert said. It doesn’t plan to use equity to fund acquisitions.

Sales in April rose 32 percent, Richemont said today, adding that “we hope that this positive trend will be confirmed in the coming months.” While revenue from Japan fell 27 percent in yen terms in March following the Japanese earthquake, sales gained 3 percent in April in yen terms, according to the company.

The Swiss company bought full control last year of online fashion retailer which launched which launched a men’s store called Mr. Porter. Excluding Net-a-Porter and currency swings, full-year sales rose 19 percent, Richemont said. The unit is performing ahead of its business plan. Richemont’s fashion and accessories business was profitable during the fiscal year, according to presentation slides posted on the company’s website.

adpted from Bloomberg