By Geoffrey Smith
Investing.com -- Times are tough for the luxury business. After spending the last three months cutting prices to drum up sales of watches, fashion goods and jewelry, Switzerland’s Richemont (SIX:CFR) is now looking at offering its shares on the cheap.
The group behind Cartier and Yoox (MI:YNAP) Net a Porter is “looking at the potential to provide shareholders with some additional form of reward” to make up for the fact that it’s just cut their dividend in half. “Such a ‘loyalty bonus’ could potentially take the form of the distribution to shareholders of an instrument entitling them to acquire further shares on advantageous terms,” chairman Johann Rupert wrote in presenting the group’s annual results.
While most companies are pruning payouts to conserve cash right now, Richemont’s caution still stands out, given that it was still sitting on nearly 2.4 billion euros of net cash at the end of its fiscal year in March, and given that the cost of debt is likely to remain at rock-bottom levels for years.
Rupert will be hoping that discounted shares meet a better reception than discounted goods. The company’s operating loss at its online channel, which it depends on to reach new customers (especially in e-commerce-heavy China) more than doubled in the last 12 months to over 240 million euros.
Nor was Rupert optimistic about a return to normal any time soon, even though he said that the company has seen “strong demand” since it reopened its 462 boutiques in China.
“No-one can say when we will see economic activity normalize,” Rupert said, with disarming frankness. “Other economies will probably find it difficult to emulate China. We may be looking at 12, 24 or 36 months of grave economic consequences. Perhaps that is too pessimistic but who knows?”
Richemont shares were among the worst performers in the sector on Friday, dropping 1.0% on a broadly up-day for European markets. The benchmark Stoxx 600 rose 1.2%, while the Swiss SMI rose 1.0%, the FTSE 100 rose 1.5% and the German Dax was up 1.7%.
Perhaps, in these straitened times, if you have to deal in luxuries, then it’s best to be in little ones, such as high-end ear buds. Much of the profit in those goes to German battery maker Varta (DE:VAR1), which has reinvented itself as a maker of microbatteries for the increasing array of gadgets that populate the Internet of Things.
Varta stock rose 7.8% to a three-month high on Friday after it reported a stellar 68% increase in organic revenue in the first quarter, but the company’s earnings release buried an even more startling nugget at the bottom:
“The high level of discipline we have shown in implementing protective measures against COVID-19 has meant we have been able to continue production without any restrictions so far,” CEO Herbert Schein said. Bucking the global uncertainty, the company expects increased operating cash flow this year that will finance an expansion of production capacity.
Overall revenue doubled as the company re-consolidated its traditional consumer battery business, which can hardly be suffering as locked-down children get to spend more time with electronic toys. For parents at least, the peace and quiet that can be bought (if only for a little while, alas) with AA and AAA is arguably the best-value luxury out there.