Compagnie Financiere Richemont AG (OTCMKTS:CFRUY) released its unaudited consolidated report for the six month period closed 30 September 2016. During this period, sales dropped 13% measured at actual exchange rates while at constant exchange rates it declined by 12%.

Excluding extraordinary inventory buy-backs, sales weakened by 8% at constant exchange rates. Internationally challenging environment and robust comparatives in Europe and Japan were noted in this period, while there was sustained promising momentum in mainland China. Operating profit dropped by 43% to €798 million while Cash flow from operations stood at €666 million.

The management view

Johann Rupert, the Chairman of Compagnie Financiere Richemont, said that profits and sales for the six-month period closed 30 September 2016 were considerably below the previous year’s level, showing the tough global environment, the challenging comparative figures and the exceptional inventory buybacks in 1H2016.

Retail sales recorded in online stores and owned boutiques have generally exceled the wholesale operations. Positive growth in accessories and resilience in jewelry partly offset reduced watch sales. From a geographic viewpoint, most markets witnessed a decline in sales with the important exceptions of the UK, Korea and mainland China.

Many Maisons proactively helped their multi-brand retail associates in order to enhance the quality of their inventory by purchasing back slow moving pieces. This step, together with the optimization of specific wholesale and retail locations, resulted in one-time charges of €249 million. These, together with lower gross profit and lower sales, resulted in a 43% drop in operating profit. Apart from these one-time expenses, operating profit would have dropped by 25%. Net profit plunged 51% over the comparable period.

Compagnie Financiere Richemont acted carefully, protecting cash flow. Working capital needs have been maintained under control, limiting the drop in cash flow from businesses. Concerning watches, the company will plan to deal with overcapacity problems, adapting manufacturing framework to the demand level.

They remain assured of the long-term opportunities for premium products, in particular for jewelry and watches.