CFRUY - Richemont

[rishig]

Overview:

Richemont (CFRUY:USOTC) is a Swiss group that owns iconic luxury brands, some of them hundreds of years old. The stock has come down by ~50% due to growth slowing down. All luxury good companies have seen a slowdown in China due to corruption crackdown and/or overall slowdown. The concerns are valid and I expect China growth to definitely slowdown. However, I think Mr. Market is missing the long-term picture here that Richemont has the ability to grow simply through pricing generating huge piles of cash. Also, there is plenty of downside protection given its solid balance sheet with 15% of its market cap in cash.

 

Richemont, through the luxury brands it owns, has tremendous pricing power. Cartier is one of the oldest jewelers, founded more than 150 years ago. It's been a jeweler to the kings. When you purchase a Cartier product, you are affiliating yourself with its rich heritage and history. The brand image of uniqueness is ingrained deeply in the minds of its affluent customers. Vacheron Constantin is the oldest swiss watchmaker in the world, over 250 years old. Constantin caps its production at 20,000 watches and makes some of the most expensive watches.

 

It can achieve long-term growth of 5%-7% simply by pricing power and very modest volume growth. The economics of this business are like a See's Candy but even better due to longevity of its brands. It is not hard to conceive that Cartier and the luxury swiss watchmakers will around another century and have a similar mind share within its client base. These brands, if cared for and preserved, are almost immune to technological disruption. Luxury brands are rarely bought for its function, but to signify one's social status.

 

In fact, part of being a luxury brand is to continue to increase the pricing of the product to enhance the brand and to keep it inaccessible from the masses. (Think Ferrari that caps its production to 6000 cars a year). Going mass market is absolutely the wrong thing to do. This is generally hard to do for a publicly traded company with pressures from Wall Street. But, I think Richemont has the management team that can preserve the brand value of its luxury brands (and hence the pricing power) in the long-term. 

 

CEO, Johann Rupert, is an owner operator and has run the company since 1988. The Rupert family built the business and Johann Rupert is second generation. The family owns 9% of outstanding (they are billionaires) and control 50% of the voting. Since 1988, shares have compounded by 15%.

 

Overview:

(in euro)

Market Cap: 34B

Net Cash: 5B (15%

Enterprise Value: 29B

EBIT: 2.7B

2015 NOPAT: 2B

EV/EBIT: 11x

EV/NOPAT: 15x

 

Buffett bought See's Candies that has primarily grown over last 35 years because of 5% pricing and 1%-2% volume growth at 12.5x EV/NOPAT.

 

Valuation:

Over the last 20 years, Richemont has compounded revenue by 11%. It has achieved this by acquiring other luxury brands such as Van Cleef & Aprels (over 100 years old), by pricing power, and by growing in China. As the number of billionaires in China went up, many luxury brands rushed to China. I don't think one can extrapolate the China growth further. But, in the long-run, one can count on pricing power and modest volume growth to give 5%-7% increase in revenue and bottom-line.

 

Also, over long-term, Richemont can continue to have return on tangible capital to be in the 25%-35% range. Putting these two variables and a 10% discount rate, you get a fair value multiple for EV/NOPAT of 15x-25x (1-g/ROIC)/(WACC-g). Currently, Richemont is trading at the bottom. Historically, EV/NOPAT has traded in the 10x-30x range.

 

If EV/NOPAT stays at 15x, then the yield is 6%. Plus 5% growth rate from pricing gives you an expected return of 11%. This does not account for ability to use free cash to acquire other luxury brands or to grow unit volume, or for the perception to change and multiple to expand.

 

Details:

See https://docs.google.com/presentation/d/19XiFdUs4fXDXvp-FKXJ_3kGpYJX4kC9a3dQK3bcUPSo/edit#slide=id.g35f391192_029

 

 

[Picasso]

What do you think of the currency risk here?  They were hit hard from the unpegging, swiss bonds are negative for twenty years, and it seems like a fairly large headwind still. Are you looking to hedge out the currency or simply roll the dice?

 

I agree that it looks like a good business at a fair price. I've just felt that currency will wipe out any gains.

[Picasso]

Also, when I see foreign money like Anbang (an entity which only had maybe $60 million ten years ago) make crazy bids for real estate outside their circle of competence it does seem like a repeat of Japan or "name your foreign money bubble" here.  Richemont used to trade for 7-10x earnings before earnings more than doubled, so you're sort of paying a peak multiple on perhaps peak earnings.  It does seem like most of their earnings are dependent on wealthy foreigners (I could be wrong here, but that's the only group of people I know who are repeat CFR buyers) which is a trend that doesn't look that great for the next several years?  Real estate flows are indicative (to me) that money is fleeing certain areas of the world in anticipation of harder times.

 

I also wanted to mention the risk premium spread on CFR versus their bond market is fairly wide, so maybe downside is 15x earnings which isn't too far from here.  But if currency headwinds plus lower earnings plays out (like I think it will) then it doesn't look that cheap?  Obviously this is a better store of wealth for someone who lives in Switzerland than 99% of their existing options so maybe it gets bid up anyway.

 

Anyway just some thoughts. 

[rishig]

What do you think of the currency risk here?  They were hit hard from the unpegging, swiss bonds are negative for twenty years, and it seems like a fairly large headwind still. Are you looking to hedge out the currency or simply roll the dice?

 

I agree that it looks like a good business at a fair price. I've just felt that currency will wipe out any gains.

 

"They were hit hard from unpegging" - Have you seen the numbers in the presentation? Despite the China corruption crackdown and swiss unpegging, NOPAT has been consistent at €2B. 2015 reported net income had a large non-cash charge as the group business' maintain books in euro. The cash impact was zero, and margins have been steady at 24%.

[benhacker]

Thanks for sharing the presentation, I think it was great, and loved the quotes from Rupert. :)

[Phaceliacapital]

Rishi,

 

thanks for the idea and concise writeup.

 

- How do you feel about Swatch vs Richemont?

- Do you feel like you have factored in sufficient long term impact from the crackdown on Chinese luxury gifting?

- How do you feel about the 50% (going from memory here) ownership in Yoox Net a Porter?

- Do you think all Swiss effect has flown through the statements? The problem that I originally saw with companies such as Swatch & Richemont is that most of their costs (design, IP, manufacturing, ...) happens in CHF, while sales happen in USD & EUR (in contrast to other Swiss companies like Nestle where you see more "local costs and local revenues". The costs that these luxury makers have in foreign (non CHF) currencies are mostly salespeople & retail stores. Do you think that this Swiss currency effect has already gone through margins?

 

That said, it's an interesting industry to look at, I would think that a lot of the smaller Swiss watchmakers are currently not very healthy from an operational standpoint due to the CHF effect and the fact that they have a much smaller balance sheet/diversification to wither such storms. This would argue in favor of Richemont & Swatch which could add good brands to their portfolio at attractive prices.

 

Thanks.

[rishig]

Also, when I see foreign money like Anbang (an entity which only had maybe $60 million ten years ago) make crazy bids for real estate outside their circle of competence it does seem like a repeat of Japan or "name your foreign money bubble" here.  Richemont used to trade for 7-10x earnings before earnings more than doubled, so you're sort of paying a peak multiple on perhaps peak earnings.  It does seem like most of their earnings are dependent on wealthy foreigners (I could be wrong here, but that's the only group of people I know who are repeat CFR buyers) which is a trend that doesn't look that great for the next several years?  Real estate flows are indicative (to me) that money is fleeing certain areas of the world in anticipation of harder times.

 

I also wanted to mention the risk premium spread on CFR versus their bond market is fairly wide, so maybe downside is 15x earnings which isn't too far from here.  But if currency headwinds plus lower earnings plays out (like I think it will) then it doesn't look that cheap?  Obviously this is a better store of wealth for someone who lives in Switzerland than 99% of their existing options so maybe it gets bid up anyway.

 

Anyway just some thoughts.

 

75% of the profits for Richemont comes from Cartier and Van Cleef & Arpels. Both these brands are over 100 years old. The luxury products they sell have been through pretty much every conceivable environment. The jewelry made by these "maisons" (as they call it) is not for the masses (just like a Ferrari). The brand derives its value from its uniqueness and rarity. So, absolutely, the clients are the wealthy and inaccessible to everyone else. This is by design because that is what gives it the pricing power. Ferrari shouldn't be making a down market product, and so wouldn't Cartier. I am not sure I understand the comparison with Anbang (I don't know what it is).

 

Richemont has practically no debt, so I am not sure what spread you are talking about. It is trading at 15x, so it is at the bottom of the range. I don't buy the peak earnings argument. This isn't an Apple iPhone that you buy for its function. The brand is intact based on my research. They have increased sales via owned boutiques by 10% (at 50% today) over the last decade which helps them control pricing and inventory in the "grey" market. You go around to your local Neiman Marcus jewelry counter and ask them why don't carry Cartier jewelry.

[Picasso]

Swiss unpegging: I think CFR was down 20% that day.  Depending on whether you own this in USD or CHF is a big deal to the returns.  I'm asking since you posted the ADR.

 

Anbang: That's just an example of the kind of wealth that has been created in China and how it's stupidly buying what it can, while it can.  That's a warning sign of being pretty peaky from a foreign wealth perspective.  Also the past thirty years have been probably the best conditions anyone could ask for in terms of generating more wealth for the wealthy.  That's already stretched to such a high extent that the kinds of wealthy monarchs who bought these products a hundred plus years ago ended up with their heads chopped off for getting too greedy.

 

Spread: An investor in Switzerland or Europe can either invest at negative returns in bonds or invest in CFR at 5-6% plus upside or downside.  That affects where it trades, the business of CFR aside.  It has nothing to do with CFR bonds because they have none, it's just a lower and lower cost of capital comparison across all swiss/euro assets.  It helps CFR look cheap because rates are so damn low.

 

Anyway that's what has kept me out of the stock in the past.  I looked at it when David Winters pitched it and thought it was okay, not great.  Price is a little better now but still not that cheap.

[Picasso]

Actually don't take my word for it.... ask Mr. Cartier himself.

 

http://www.bloomberg.com/news/articles/2015-06-08/billionaire-cartier-owner-sees-wealth-gap-fueling-social-unrest

[rishig]

Swiss unpegging: I think CFR was down 20% that day.  Depending on whether you own this in USD or CHF is a big deal to the returns.  I'm asking since you posted the ADR.

 

Anbang: That's just an example of the kind of wealth that has been created in China and how it's stupidly buying what it can, while it can.  That's a warning sign of being pretty peaky from a foreign wealth perspective.  Also the past thirty years have been probably the best conditions anyone could ask for in terms of generating more wealth for the wealthy.  That's already stretched to such a high extent that the kinds of wealthy monarchs who bought these products a hundred plus years ago ended up with their heads chopped off for getting too greedy.

 

Spread: An investor in Switzerland or Europe can either invest at negative returns in bonds or invest in CFR at 5-6% plus upside or downside.  That affects where it trades, the business of CFR aside.  It has nothing to do with CFR bonds because they have none, it's just a lower and lower cost of capital comparison across all swiss/euro assets.  It helps CFR look cheap because rates are so damn low.

 

Anyway that's what has kept me out of the stock in the past.  I looked at it when David Winters pitched it and thought it was okay, not great.  Price is a little better now but still not that cheap.

 

1. Well, you mean the "stock" got killed. I assumed you meant the business. I posted the ADR because most people can't buy international. I own it on the Swiss exchange.

 

2. I understand but I don't agree. Luxury brands like Cartier and Ferrari will be around for a long time. I can't concisely tell you why, but I recommend you read "Kapferer on Luxury: How Luxury Brands can Grow yet Remain Rare." http://www.amazon.com/Kapferer-Luxury-Brands-Grow-Remain/dp/074947436X

 

3. I understand that is looks cheap because of negative rates. So, what is the fair value of a business that can grow for a long time at 5%-6%? Is it 10x and not 15x? So, the key for me is I believe Richemont's brands are strong enough to get 5%-6% price increases over a very very long time. There will be fits and starts, but in the long-term, 5%-6% growth is very conservative. If you look at 20 year data (in the presentation), it has in the worst 5 year period grown at 6%.

 

3. I am not buying because of Winters or anyone else. I didn't know he even owned it. The price today is quite different from where it was in the past.

[rishig]

Actually don't take my word for it.... ask Mr. Cartier himself.

 

http://www.bloomberg.com/news/articles/2015-06-08/billionaire-cartier-owner-sees-wealth-gap-fueling-social-unrest

 

The article is a summary of his talk here (which I highly recommend):

[rishig]

Rishi,

 

thanks for the idea and concise writeup.

 

- How do you feel about Swatch vs Richemont?

- Do you feel like you have factored in sufficient long term impact from the crackdown on Chinese luxury gifting?

- How do you feel about the 50% (going from memory here) ownership in Yoox Net a Porter?

- Do you think all Swiss effect has flown through the statements? The problem that I originally saw with companies such as Swatch & Richemont is that most of their costs (design, IP, manufacturing, ...) happens in CHF, while sales happen in USD & EUR (in contrast to other Swiss companies like Nestle where you see more "local costs and local revenues". The costs that these luxury makers have in foreign (non CHF) currencies are mostly salespeople & retail stores. Do you think that this Swiss currency effect has already gone through margins?

 

That said, it's an interesting industry to look at, I would think that a lot of the smaller Swiss watchmakers are currently not very healthy from an operational standpoint due to the CHF effect and the fact that they have a much smaller balance sheet/diversification to wither such storms. This would argue in favor of Richemont & Swatch which could add good brands to their portfolio at attractive prices.

 

Thanks.

 

1. I like Richemont for its Cartier brand. It's a luxury brand that does not try to cater to down market, which has lots of risks. The swatch branded watches are getting killed because of smart watches. The Omega watches aren't in the same league as the Cartier ones. LVMH has Tag Heuer which has gone in the wrong direction in my opinion by introducing a smart watch. Both Omega and Tag are in price segments where they are getting the pressure from smart watches. I like luxury brands that can protect its pricing by not trying to cater to the masses. Cartier seems well protected from disruption.

 

2. It's been more than three years since crackdown on corruption started. It has not been pleasant for the Swiss watchmakers in general. But when I look at Richemont's numbers for the watches, it has been quite stable. Again, I think it is because of the strong brands they own. It is quite well known that exports of Swiss watches have surged around political transitions in China in the past 3 decades. This is not the first time for the Swiss watchmaking industry. I think the high end luxury brands can survive this primarily through pricing over time. Having said that, the thing that is different this time is the internet - so watches sold to retailers on wholesale are being dumped to the "grey" market at large discounts. See Jomashop. Controlling distribution is the key and Richemont understands that. In the near term this be an overhang (hence the reason for being where it is in price).

 

http://www.ft.com/intl/cms/s/2/7c7bd022-c8dd-11e5-a8ef-ea66e967dd44.html#axzz43NdGgNpC

 

3. It's in assets on sale.

 

4. It's gone through for at least partly. They are taking steps by increasing pricing in Europe.

[Jurgis]

Actually don't take my word for it.... ask Mr. Cartier himself.

 

http://www.bloomberg.com/news/articles/2015-06-08/billionaire-cartier-owner-sees-wealth-gap-fueling-social-unrest

 

The article is a summary of his talk here (which I highly recommend):

 

Not a bad talk, but you may have posted a link to the wrong talk. The talk is from 2010 and I don't think it's related to 2015 Bloomberg article. :)

[rishig]

Actually don't take my word for it.... ask Mr. Cartier himself.

 

http://www.bloomberg.com/news/articles/2015-06-08/billionaire-cartier-owner-sees-wealth-gap-fueling-social-unrest

 

The article is a summary of his talk here (which I highly recommend):

 

Not a bad talk, but you may have posted a link to the wrong talk. The talk is from 2010 and I don't think it's related to 2015 Bloomberg article. :)

 

Oops sorry. Here's the 2015 one:

[Jurgis]

Oops sorry. Here's the 2015 one:

 

Great talk. Great guy.

 

Now I am a bit in a bind though.

 

I like the CEO. I don't like the business. :)

 

The future for superluxury is possibly not that great.

And I'd rather invest in Apple that caters to somewhat-snobs than Richemont that caters to super-snobs.

And even though Johann believes that super-snobs are backward-looking in buying hand-made unique (numbered) watches and jewelry, I am not so sure. At some point they may go with smartwatch even if it's not unique and hand crafted just because it offers more functionality than hand-made super luxury watches. And the argument that superluxury item should be "forever" and not thrown away in two years... yeah, I get it... and yet, I still think it's a flawed argument. Perhaps because I don't value nostalgia.

 

Smart jewelry is not on horizon yet, so Cartier can hold on for much longer.

Still the reliance on taste conservativism of new snob elite is possibly not good.

Johann probably is aware of this though.

 

But then I've never been a superluxury admirer. I'm a geek and I value functionality rather than the brand/rarity/uniqueness/artistry.

I can appreciate high art, but that's a bit different.

 

Anyway, thanks for posting. If I decide to put money in superluxury, Johann Rupert would be my choice for CEO. ;)

[rishig]

Oops sorry. Here's the 2015 one:

 

Great talk. Great guy.

 

Now I am a bit in a bind though.

 

I like the CEO. I don't like the business. :)

 

The future for superluxury is possibly not that great.

And I'd rather invest in Apple that caters to somewhat-snobs than Richemont that caters to super-snobs.

And even though Johann believes that super-snobs are backward-looking in buying hand-made unique (numbered) watches and jewelry, I am not so sure. At some point they may go with smartwatch even if it's not unique and hand crafted just because it offers more functionality than hand-made super luxury watches. And the argument that superluxury item should be "forever" and not thrown away in two years... yeah, I get it... and yet, I still think it's a flawed argument. Perhaps because I don't value nostalgia.

 

Smart jewelry is not on horizon yet, so Cartier can hold on for much longer.

Still the reliance on taste conservativism of new snob elite is possibly not good.

Johann probably is aware of this though.

 

But then I've never been a superluxury admirer. I'm a geek and I value functionality rather than the brand/rarity/uniqueness/artistry.

I can appreciate high art, but that's a bit different.

 

Anyway, thanks for posting. If I decide to put money in superluxury, Johann Rupert would be my choice for CEO. ;)

 

You and I are not the customer. Having said that, I have read enough about Cartier to feel comfortable about its durability

 

[topofeaturellc]

The controversy you need to underwrite is all about China obviously, but it's not just about product sold as gifts.  It's also about these products as a route to capital flight.  For example pawning high end watches and and jewellery is a textbook way to convert rmb to hkd or USD.  Also a lot of the growth ex China is going to be driven by similar dynamics. You'll need to strip that put of your topline to get to the sustainable top line number.  The nice thing is that the wholesale business has huge GM and lots of variable costs so it is well positioned to fix itself. You will need to think about how reducing marketing spend impacts topline or if richemont is willing to keep spending at the same rate and if that incremental spend is strengthening the brand intangible or is simply a cash bonfire.

 

Then there is the second issue of the boutiques and how many of the new ones are money good.  You'll need to bake in closure costs and writedowns into your invested capital number before you start using IC multiples and what not. 

 

I think it's potentially an interesting idea and I've fiddled around with it for a few hours but I felt like I'd want to pay a meaningfully cheaper than historic multiple adjusted for corruption/boom  to be comfortable with just how large the error term will be on that adjustment.  And it just didn't look like we were  there.

[Guest neiljgsingh]

Oops sorry. Here's the 2015 one:

 

Great talk. Great guy.

 

Now I am a bit in a bind though.

 

I like the CEO. I don't like the business. :)

 

The future for superluxury is possibly not that great.

And I'd rather invest in Apple that caters to somewhat-snobs than Richemont that caters to super-snobs.

And even though Johann believes that super-snobs are backward-looking in buying hand-made unique (numbered) watches and jewelry, I am not so sure. At some point they may go with smartwatch even if it's not unique and hand crafted just because it offers more functionality than hand-made super luxury watches. And the argument that superluxury item should be "forever" and not thrown away in two years... yeah, I get it... and yet, I still think it's a flawed argument. Perhaps because I don't value nostalgia.

 

Smart jewelry is not on horizon yet, so Cartier can hold on for much longer.

Still the reliance on taste conservativism of new snob elite is possibly not good.

Johann probably is aware of this though.

 

But then I've never been a superluxury admirer. I'm a geek and I value functionality rather than the brand/rarity/uniqueness/artistry.

I can appreciate high art, but that's a bit different.

 

Anyway, thanks for posting. If I decide to put money in superluxury, Johann Rupert would be my choice for CEO. ;)

 

You and I are not the customer. Having said that, I have read enough about Cartier to feel comfortable about its durability

 

Rishi,

 

Thanks for the great writeup. Do you have numbers on the product mix of Cartier sales? I ask because I know the brand from two different consumer angles: my limited knowledge of the Swiss watchmakers, and the way girls tend to view Cartier as a jewelry company. Both give me differnt signals on Richemont's ability to grow brand equity and pricing power in the long-term. (Note: really trying not to generalize or be sexist here---just relaying aggregate trends that I've also seen.)

 

Within watch circles, there is a pervading sense that Cartier's watches lack the functionality and complications that peers tend to offer at similar price points. Cartiers tend to be elegant and beautiful, but among watch enthusiasts (typically men), Cartier loses out to Omega, Rolex, Panerai (also a Richemont brand), etc., since they are seen as a less 'serious' watchmaker that caters much more to luxury ladies watches than their peers do. I find it helpful to distinguish a bit between pure luxury watches that are very popular with women (think gold, leather straps, smaller dials, no chrono) and sport/functional watches that are popular with male enthusiasts (in Rolex terms, think Submariner/Sea-Dweller/Deep Sea for watersports, Daytona for racing, Sky-Dweller for travelers). This also helps to make sense of Cartier's brand image among women as primarily a jewelry company. Anyway, what I'm trying to test is my hunch that they sell more women's watches (often as gifts) than men's.

 

Of course, this might not be of any consequence in the long-run, especially if these realities have been reflected in their sales mix for some time. (From a popular watch forum: "Cartier is right where Richemont wants them to be. They want the Mr. GQs and husband-of-ms. Cartier to buy matching Tanks.") They've clearly been able to deliver top- and bottom-line growth, but it would be interesting to see where exactly that's come from. If they've relied more on male watches than women's watches and jewelry, it would seriously change my confidence in their ability to maintain market share and command pricing power moving forward.

[rishig]

Oops sorry. Here's the 2015 one:

 

Great talk. Great guy.

 

Now I am a bit in a bind though.

 

I like the CEO. I don't like the business. :)

 

The future for superluxury is possibly not that great.

And I'd rather invest in Apple that caters to somewhat-snobs than Richemont that caters to super-snobs.

And even though Johann believes that super-snobs are backward-looking in buying hand-made unique (numbered) watches and jewelry, I am not so sure. At some point they may go with smartwatch even if it's not unique and hand crafted just because it offers more functionality than hand-made super luxury watches. And the argument that superluxury item should be "forever" and not thrown away in two years... yeah, I get it... and yet, I still think it's a flawed argument. Perhaps because I don't value nostalgia.

 

Smart jewelry is not on horizon yet, so Cartier can hold on for much longer.

Still the reliance on taste conservativism of new snob elite is possibly not good.

Johann probably is aware of this though.

 

But then I've never been a superluxury admirer. I'm a geek and I value functionality rather than the brand/rarity/uniqueness/artistry.

I can appreciate high art, but that's a bit different.

 

Anyway, thanks for posting. If I decide to put money in superluxury, Johann Rupert would be my choice for CEO. ;)

 

You and I are not the customer. Having said that, I have read enough about Cartier to feel comfortable about its durability

 

Rishi,

 

Thanks for the great writeup. Do you have numbers on the product mix of Cartier sales? I ask because I know the brand from two different consumer angles: my limited knowledge of the Swiss watchmakers, and the way girls tend to view Cartier as a jewelry company. Both give me differnt signals on Richemont's ability to grow brand equity and pricing power in the long-term. (Note: really trying not to generalize or be sexist here---just relaying aggregate trends that I've also seen.)

 

Within watch circles, there is a pervading sense that Cartier's watches lack the functionality and complications that peers tend to offer at similar price points. Cartiers tend to be elegant and beautiful, but among watch enthusiasts (typically men), Cartier loses out to Omega, Rolex, Panerai (also a Richemont brand), etc., since they are seen as a less 'serious' watchmaker that caters much more to luxury ladies watches than their peers do. I find it helpful to distinguish a bit between pure luxury watches that are very popular with women (think gold, leather straps, smaller dials, no chrono) and sport/functional watches that are popular with male enthusiasts (in Rolex terms, think Submariner/Sea-Dweller/Deep Sea for watersports, Daytona for racing, Sky-Dweller for travelers). This also helps to make sense of Cartier's brand image among women as primarily a jewelry company. Anyway, what I'm trying to test is my hunch that they sell more women's watches (often as gifts) than men's.

 

Of course, this might not be of any consequence in the long-run, especially if these realities have been reflected in their sales mix for some time. (From a popular watch forum: "Cartier is right where Richemont wants them to be. They want the Mr. GQs and husband-of-ms. Cartier to buy matching Tanks.") They've clearly been able to deliver top- and bottom-line growth, but it would be interesting to see where exactly that's come from. If they've relied more on male watches than women's watches and jewelry, it would seriously change my confidence in their ability to maintain market share and command pricing power moving forward.

 

Cartier does not break down sales between product categories. So, it is hard to tell how much is jewelry vs. watches. Cartier is primarily known for its jewelry and women's watches. Also, Cartier sticks to its identity rather than position itself with "competition". A true luxury brand sticks to its heritage and uniqueness and Cartier watches are known for its classic look. One of the most popular Cartier watch designs of all time is the "Tank" that was introduced in 1917. The Tank continues to be the best selling Cartier women's watch today.

 

https://www.youtube.com/watch?v=HP-LpMjUvYM

http://www.vanityfair.com/news/2009/11/fanfair-cartier-200911

http://www.acontinuouslean.com/2013/11/13/cartier-tank-mc/

 

75% of operating profit comes from Jewelry Maisons, which is Cartier and Van Cleef & Arpels. Both primarily are popular among women. And in my understanding, the China crackdown or slowdown has short-term impact on Richemont. But in the longer-term, these brands will stay intact and will continue to exercise pricing.

 

http://www.ft.com/intl/cms/s/0/a398d264-78af-11e5-a95a-27d368e1ddf7.html#axzz43VC0y7Jq

[rishig]

Highly recommend reading CEO Johann Rupert's responses to Q/A from FY2015. Probably among one of the best Q/A I have read in a conference call. Rupert has strong opinions on why they never give out guidance and he makes sure that analysts know why.

arp_transcript_fy_2015_2805215_q93imd7k2b.pdf

[Jurgis]

Highly recommend reading CEO Johann Rupert's responses to Q/A from FY2015. Probably among one of the best Q/A I have read in a conference call. Rupert has strong opinions on why they never give out guidance and he makes sure that analysts know why.

 

Nitpick correction: Rupert is a Chairman, but not CEO. Richemont had two co-CEOs, one of whom just retired ( https://www.richemont.com/press-centre/company-announcements.html?view=article&id=460 ). It does seem that Rupert is heavily involved in the company and possibly strategically leading it similar to Malone and Diller who are not CEOs either. :)

[rishig]

Highly recommend reading CEO Johann Rupert's responses to Q/A from FY2015. Probably among one of the best Q/A I have read in a conference call. Rupert has strong opinions on why they never give out guidance and he makes sure that analysts know why.

 

Nitpick correction: Rupert is a Chairman, but not CEO. Richemont had two co-CEOs, one of whom just retired ( https://www.richemont.com/press-centre/company-announcements.html?view=article&id=460 ). It does seem that Rupert is heavily involved in the company and possibly strategically leading it similar to Malone and Diller who are not CEOs either. :)

 

Yes, sorry that was my error.

[LC]

Great recommendation on the Q&A reading. Some notable highlights:

 

If you

want to have your brand equity, you don’t start with a promise to the analysts, which then works

through a budget, and then end up with us telling the head of Roger Dubuis, ‘Hang on, just don’t

spend the €250,000, or X, Y, Z.’ It’s the wrong way round, and this, I know you’ve got to do

your job, but what I worry about is that we twist it around.

 

Do you know the pressure we’ve had, share buybacks, share buybacks When

do you buy back shares? When you’ve got cash. Mining companies, ‘Oh, we’ve got the cash.

Here, go and buy back the shares.’ When do you have the cash? At the height of the cycle.

Okay, your options, your prices, everybody, you cash your options, fine. Then the cycle turns.

Your share price falls out of bed and you ain’t got no cash left, but if you look at the corporate,

the activists, ‘Buy back, buy back.’

[Jurgis]

Highly recommend reading CEO Johann Rupert's responses to Q/A from FY2015. Probably among one of the best Q/A I have read in a conference call. Rupert has strong opinions on why they never give out guidance and he makes sure that analysts know why.

 

Yeah, Rupert is fun guy. I wonder if he's really Terminator or if he just pretends to be. ;)

 

If only I liked the business more...

[rishig]

Highly recommend reading CEO Johann Rupert's responses to Q/A from FY2015. Probably among one of the best Q/A I have read in a conference call. Rupert has strong opinions on why they never give out guidance and he makes sure that analysts know why.

 

Yeah, Rupert is fun guy. I wonder if he's really Terminator or if he just pretends to be. ;)

 

If only I liked the business more...

 

May be you can clarify what specifically you don't like