Richemont's Jewelry Gems: A Contrarian Bet in Luxury's Slump

The global luxury sector is entering a cyclical slowdown, with macroeconomic headwinds, shifting consumer preferences, and regional imbalances weighing on sales. Yet within this challenging landscape, one company stands out: Richemont, whose jewelry division has defied the downturn with an 11% sales surge in the final quarter of fiscal 2024/25, outperforming its peers and underscoring the strategic appeal of high-end jewelry as both a consumer good and an investment asset. For contrarian investors, this divergence presents a compelling opportunity to position in Richemont (SWISS:RFEN) as the sector's broader underperformance creates valuation gaps and highlights the durability of its jewelry franchises.

The Contrarian Case for Richemont: Jewelry's Resilience in a Slumping Sector

While the broader luxury market faces challenges—slowing sales, margin pressures, and regional demand shifts—Richemont's jewelry division has emerged as a pillar of stability. Key data points highlight its contrarian edge:
- 11% jewelry sales growth in Q4 2024/25 (constant currency), driven by double-digit gains in the Americas (+15%), Japan (+25%), and the Middle East/Africa (+20%).
- 8% full-year jewelry growth to €15.3 billion, accounting for 71% of total group sales, while its struggling watch division (-13% sales) dragged down overall performance.
- Operating margins of 31.9% in jewelry, far outpacing the broader sector's margin erosion, thanks to disciplined pricing, cost controls, and a focus on high-margin heritage brands like Cartier and Van Cleef & Arpels.

In contrast, LVMH (PAR:LVMH)—often viewed as the luxury sector's bellwether—reported flat growth in its watches and jewelry division (despite Tiffany's gains), while apparel and accessories faced softness. This divergence reflects Richemont's superior execution in jewelry, a category increasingly favored by affluent consumers seeking value-retaining, timeless assets over faddish fashion.

Why Jewelry is the Contrarian Play in Luxury Today

1. Demand for Durability and Value Retention
   As consumers grow price-sensitive and wary of volatile markets, jewelry's status as a hard asset—with proven long-term appreciation and liquidity—gains traction. Richemont's brands cater to this trend:
2. Cartier's iconic designs (e.g., Love bracelet) and Van Cleef & Arpels' heritage collections appeal to buyers seeking pieces that hold or increase value over time.

3. Jewelry sales are less cyclical than apparel or accessories, with demand tied to life milestones (weddings, anniversaries) and wealth preservation.

4. Regional Diversification Buffers Asia Risks
   While LVMH and Kering (Gucci's parent) have been dented by China's sluggish luxury market, Richemont's jewelry division has balanced exposure:

5. Americas and Middle East growth offset Asia-Pacific declines (-14% in China/Hong Kong/Macau).

6. The Middle East, now a double-digit growth engine, is home to young, high-net-worth buyers drawn to jewelry as a status symbol and investment.

7. Margin Resilience in a Cost-Pressure Environment
   Rising gold prices and operational costs have squeezed margins across the sector. Richemont's focus on direct-to-consumer sales (85% of jewelry sales) and selective store openings (e.g., new flagship boutiques in Dubai and Tokyo) has insulated it from third-party retailer markdowns.

Investment Thesis: Buy Richemont for Contrarian Alpha

For investors seeking to capitalize on the luxury sector's shakeout, Richemont offers three compelling advantages:
1. Valuation Attractiveness
Despite its strong performance, Richemont trades at a discount to LVMH on sales and earnings multiples, reflecting lingering concerns over its watch division and broader market pessimism.

1. Structural Tailwinds
   Jewelry's rising share of luxury spending (now over 30% in key markets) and its role as a “store of value” during economic uncertainty position Richemont to outperform peers in the next 1–2 years.

2. Dividend and Cash Flow Stability
   With €7.9 billion in net cash and a 20.9% operating margin, Richemont can weather soft patches while returning capital to shareholders.

Risks and Considerations

• Overreliance on China's Recovery: While Richemont has diversified, a prolonged slowdown in China could pressure margins.
• Gold Price Volatility: Rising gold costs could squeeze profitability if pricing adjustments lag.
• Competition from Smaller Players: Upstarts like India's Tanishq are gaining traction in emerging markets, though Richemont's heritage brands remain untouchable in premium segments.

Conclusion: A Gem in a Slump

The luxury sector's current slump is a test of both brands and investors. Richemont's jewelry division has proven its mettle, offering a rare combination of resilience, margin strength, and contrarian appeal. For investors willing to look past the sector's headlines, positioning in Richemont now—while valuations remain depressed and peers falter—could yield rich rewards as the luxury cycle stabilizes.

Consider this: In a world of fleeting trends, timeless jewelry is one of the few luxury categories that transcends cycles. Richemont's mastery of this space makes it a must-watch in 2025.