Richemont's Jewelry Fortunes: A Beacon in the Luxury Sector Storm

The luxury market is entering a new era of volatility, with geopolitical tensions, shifting consumer preferences, and macroeconomic headwinds testing even the most established players. Amid this turbulence, Richemont—a titan of high-end watches and jewelry—stands out as a paradox: its jewelry division thrives while its watch business stumbles. This divergence offers a compelling investment thesis, as the group's strategic pivot to jewelry positions it as a counter-cyclical play in a slowing luxury market.

The Two-Speed Luxury Machine

Richemont's fiscal year 2024 results (ended March 2025) reveal a stark split between its jewelry and watch divisions. While jewelry Maisons like Cartier and Van Cleef & Arpels grew sales by 8% to €15.3 billion, fueled by double-digit gains in Europe and the Americas, the Specialist Watchmakers division (IWC, Panerai, etc.) sank 13%, hit by a 27% collapse in sales across Mainland China, Hong Kong, and Macau.

The contrast in profitability is even starker: jewelry's 31.9% operating margin dwarfs watches' 5.3%, reflecting disciplined pricing and cost control. This margin resilience is critical as inflation and tariffs bite—jewelry's higher margins act as a buffer, while watches face margin erosion from rising gold prices and tariffs.

Geographic Diversification: Jewelry's Secret Weapon

Richemont's jewelry division has mastered geographic balancing. While Asia Pacific (excluding Japan) saw watch sales plummet 27%, jewelry sales in the region grew 10% at constant exchange rates, driven by South Korea, India, and Middle Eastern markets. Even in China, jewelry sales in key cities rose 7%, outperforming watches' 18% decline.

The watch division, by contrast, remains overly reliant on Asia Pacific, which once accounted for 50% of its sales. This concentration has become a vulnerability, as Chinese consumers shift spending toward jewelry—seen as a tangible store of value—and away from watches during economic uncertainty.

Tariff Mitigation: Navigating Stormy Seas

Richemont's response to tariffs and trade barriers is a masterclass in operational agility. Key strategies include:
1. Production Cuts: Rolex, Patek Philippe, and Audemars Piguet reduced output to avoid oversupply, preserving brand equity.
2. Stock Buybacks: The group bought excess watch inventory in China to manage overstock risks, while jewelry's direct-to-consumer sales model (now 76% of jewelry sales) gave it pricing control.
3. Short-Time Work Programs: Swiss factories furloughed staff temporarily to reduce fixed costs, a lifeline during the watch slump.

Meanwhile, jewelry's 85% direct-to-consumer sales mix (vs. watches' reliance on wholesalers) insulated it from tariff-driven margin squeezes. This shift toward retail ownership also enabled Richemont to capture more value at the top of the pricing chain.

Why Jewelry Dominates in a Defensive Market

The ultra-wealthy are voting with their wallets. Jewelry's allure as a liquid, culturally symbolic asset—especially in regions like China and the Middle East—is hard to replicate. Cartier's iconic designs (e.g., Love bracelets, Juste un Clou rings) have become heirloom investments, while watches face competition from cheaper alternatives and digital timekeeping.

Richemont's acquisition of Vhernier in 2024 further solidified its jewelry dominance, adding a Swiss high-jewelry brand to its portfolio. This contrasts sharply with peers like LVMH, whose watch divisions (e.g., TAG Heuer, Zenith) face similar Asia-driven headwinds, and whose stock trades at a higher multiple (23x P/E vs. Richemont's 15.8x) despite weaker margins.

Investment Implications: A Defensive Play for a Slowing Market

Richemont's €8.3 billion net cash position and jewelry-driven growth make it a compelling contrarian bet. Investors should consider:
- Leveraging the dip: The stock has underperformed peers due to watch woes, but its jewelry tailwinds and balance sheet offer a margin of safety.
- Long-term margin upside: Jewelry's 31.9% operating margin leaves room to expand further as volumes grow.
- China reopening benefits: A recovery in tourism and domestic demand could stabilize watch sales, but jewelry's resilience ensures downside protection.

Risks and Considerations

• Watch division recovery: If Asia's demand for watches doesn't rebound, margin pressures could persist.
• Geopolitical tailwinds: Trade disputes or new tariffs could disrupt supply chains.

Final Verdict: Buy the Jewelry Hedge

Richemont is uniquely positioned to outperform peers in a contracting luxury market. Its jewelry division's counter-cyclical strength, geographic diversification, and fortress balance sheet make it a defensive must-own for investors seeking stability. Target a 12–18-month price target of CHF 190+, with a selective long position recommended. In a world of uncertainty, Cartier's glittering heirlooms just got brighter.