Richemont reported its weakest profit margin in more than a decade, showing how much it’s costing the Swiss luxury-goods maker to push into e-commerce.
Last year’s purchases of luxury online retailers YNAP and Watchfinder have boosted sales, but eroded profitability, Richemont said on Friday. The operating margin slipped to 13.9%, the lowest in more than a decade. The stock fell as much as 2.4% in morning trading in Zurich.
The online luxury business is going through an unprofitable investment phase as the industry tries to bulk up in the blossoming field and appeal to younger customers. Online rival Farfetch plunged 11% on Thursday after the e-commerce platform reported a wider-than-expected loss.
Richemont said its online distributors had an operating loss of €264-million, which Rene Weber, an analyst at Bank Vontobel, called disappointing. The businesses are positive before depreciation and amortisation, CEO Burkhart Grund said.
Richemont has been expanding its Watchfinder second-hand watch business into France, and it had a glitch integrating The Outnet that took nine months to solve, Grund added.
The learning curve has been “steep and painful,”, he said, referring to The Outnet.
These results show how much of a bet Richemont is making on the importance of online sales to the luxury industry. Excluding those units and other one-time costs, operating profit would have increased 13%.
Investors may be disappointed that Richemont didn’t give many more details on YNAP’s joint venture with Chinese online retailer Alibaba. The company merely said it’s progressing on schedule and will start up this fiscal year.
Total operating income climbed 5% to €1.94-billion in the 12 months to March. Analysts expected €2.05-billion. — Reported by Corinne Gretler, (c) 2019 Bloomberg LP