Richemont Placed on J.P. Morgan's 'Positive Catalyst Watch' on Resilient Jewellery Demand

J.P. Morgan placed luxury goods group Richemont on its "Positive Catalyst Watch" on Tuesday, signaling a potential near-term upside for the stock ahead of its Nov. 13 results. The bank cited resilient demand in the company's core jewellery division and an attractive valuation following an 11% decline in its share price over the past month.

Analyst Thesis

J.P. Morgan reiterated its "Overweight" rating on Richemont, which it considers its top pick in the luxury sector, and raised its price target to CHF235 from CHF220. The prior day's closing price was CHF172.25.

The bank noted that its own financial estimates for Richemont remain resilient despite a challenging macroeconomic environment that has prompted widespread earnings estimate cuts for Richemont's peers. J.P. Morgan's forecasts for fiscal years 2027-29 are 2%-4% above consensus on sales and 2%-3% ahead on operating profit.

Segment Forecasts

For the second quarter, J.P. Morgan projects Richemont's group sales will grow 13% at constant currencies, a slowdown from 20% in the first quarter due to tougher year-over-year comparisons. The bank's detailed expectations include:

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• Jewellery Maisons: Sales are forecast to increase 17%, supported by strong performance across the portfolio. J.P. Morgan cited Chase card data indicating a 6% rise in North American jewellery sales so far in the third calendar quarter.
• Specialist Watchmakers: Sales are expected to rise 4% at constant currencies, decelerating from 8% growth in the prior quarter.
• Other Businesses: This segment is projected to grow by 5% at constant currencies.

Margin and Risk Outlook

J.P. Morgan anticipates Richemont's first-half operating margin will improve by 10 basis points to 22.3%. The bank expects operating leverage to offset a 230-basis-point decline in gross margin, which is being pressured by higher gold costs. While the Jewellery Maisons' margin is forecast to fall by 150 basis points, the Specialist Watchmakers' margin is seen expanding by 230 basis points due to tighter cost controls.

Key risks to the bank's positive outlook include a weaker-than-expected macroeconomic environment, a potential slowdown in the global jewellery market, and the impact of a stronger Swiss franc against the euro.