Richemont: Acceleration in Sales as Jewellery Maisons Shine; Shares Fairly Valued

Key Morningstar Metrics for Compagnie Financiere Richemont

• Fair Value Estimate
  : CHF 186
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

Richemont delivered a very strong first quarter with 20% constant-currency revenue growth, led by Jewellery Maisons (up 24%), but all other segments contributing strongly. Markets reacted positively, sending shares up 6%.

Why it matters: Richemont has outperformered through the industry downturn, but the acceleration of sales growth (20% in the first quarter, from 13% in the fourth) is nonetheless an encouraging sign for its luxury peers that have yet to report. Jewellery Maisons’ performance remains impressive and should have a positive impact on margin from mix effect—it’s the highest-margin division—though somewhat dampened by continuing cost headwinds.

• Revenue in all geographies was up in the double digits, except for the Middle East and Africa, affected by the regional conflict. Most notably, sales in the Asia-Pacific excluding Japan were up 21%, with a double-digit rise for Jewellery Maisons in Greater China. Overall, the Chinese cluster was up 9% in the quarter for the group, which we see as encouraging, given the importance of this nationality cluster to sector recovery. Tier 1 cities and high-ticket items have seen stronger demand, suggesting the recovery is led by affluent, rather than aspirational consumers.
• Growth was led by volumes as well as pricing, which contributed around 6%-7%, in line with the fourth quarter. We believe Richemont was less aggressive in terms of pricing compared with its leather goods peers in the direct aftermath of the pandemic and now has more room for price increases.

The bottom line: We increase our fair value estimate to CHF 186 from CHF 181, to reflect slightly higher expectations for growth in the current fiscal year on the back of the strong first quarter. We acknowledge that the comparison base gets progressively more challenging throughout the year versus the first quarter.

• Long-term, our models imply 6%-7% revenue growth and margin scaling to the high 20%. At current levels, shares look fairly valued.