Richemont: Third Point is in no position to rush Johann Rupert
Founder’s control of group makes criticism from minority shareholders mere rhetoric
Time is a luxury that Richemont, like its customers, can afford. That is thanks to the pricey watches it sells and the control wielded by founder and chair Johann Rupert.
US activist Third Point has reportedly bought shares in the Swiss luxury conglomerate, which owns Cartier, and is seeking improvements. But Rupert has no need to respond to chivvying quickly. A dual-share structure means he controls more than half of voting shares despite an economic interest of just 9 per cent.
That makes any criticism from minorities mere rhetoric, however well-founded. What investors might complain about is the dependence Richemont has on its jewellery businesses, in particular Cartier. These brands plus its specialist watches provide almost three-quarters of revenues and all its profits. Its other businesses are weaker.
This skewed earnings power is a feature of some luxury goods groups. LVMH of France earns most of its coin from its Louis Vuitton leather goods business. It also has a dual-class structure for the controlling Arnault family, though not as extreme as that of Richemont.
The focus on jewellery could explain the longer period Richemont needs to convert inventories and receivables into cash flow. It needs twice as many days as LVMH and Kering, according to S&P Global data. Higher working capital requirements create a drag on cash flow.
All this, and weaker profit margins than peers, may explain why the share price has in past years trailed its peers, though Richemont began to close that gap in 2021.
What shareholders will want to hear about are Richemont’s other ventures. These have burnt up cash. After taking full control of the Yoox Net-a-Porter luxury ecommerce group for about €2.8bn in 2018, the online division has suffered losses equal to a tenth of divisional sales two years running. Talk of restructuring at YNAP has gone on for some time and the chair promised changes at the annual general meeting in September.
A clearer plan could come this Friday when Richemont announces first-half results. Given Rupert’s control of the group, he has a further luxury: to set out a plan to diversify earnings and squeeze out efficiencies at a pace that suits his business rather than impatient activists.