Richemont's Wholesale Revenue Drops on Sales Network Cleanup

(Bloomberg) -- Richemont, the maker of Cartier necklaces and IWC timepieces, reported lower wholesale revenue as it became more selective with its retail points, a sign the luxury house is cleaning up its distribution network after being forced to buy back unsold watches.

Wholesale revenue declined 3 percent at constant exchange rates in the three months through December. Richemont cut off sales to stores that haven’t been successful enough in finding end-clients for watches by its brands, which include Vacheron Constantin and A. Lange & Soehne.

“Utter restraint and tight discipline are being enforced in an effort not to repeat the mistakes of the past,” wrote Luca Solca, an analyst at Exane BNP Paribas. “We would expect wholesale to move up step by step, in a U-shaped recovery.”

Small independent watch shops are going out of business and the traditional wholesale timepiece industry may disappear, Chief Financial Officer Burkhart Grund said in November. Richemont is clamping down on its distributor network after a glut in unsold watches led it to buy back unsold inventory.

Richemont’s total revenue gained 7 percent excluding currency shifts, the Geneva-based company said Thursday. Analysts predicted 5.9 percent. The stock rose 1.3 percent as of 9:04 a.m. in Zurich.

Demand for luxury goods surged last year following a multi-year slowdown driven in part by economic uncertainty and a crackdown on state corruption in China. While the turnaround has sparked competitors like LVMH and Hermes International to invest in new factories for products like high-end handbags and cognac, Richemont has focused on clearing out a glutted market for Swiss timepieces by buying back unsold stock from retailers.

The company, whose full name is Cie. Financiere Richemont SA, doesn’t report profit for its fiscal third quarter. Total revenue amounted to 3.12 billion euros ($3.7 billion), just ahead of the 3.1 billion-euro estimate.

Revenue in Asia Pacific, which accounted for nearly 40 percent of total sales in the first half, gained 11 percent.

--With assistance from Mara Bernath

To contact the reporters on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net, Robert Williams in Paris at rwilliams323@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, Benedikt Kammel

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