Unlocking Richemont's Luxury Potential: Capital Allocation and Sector Shifts Post-2025 Q2

In the ever-evolving luxury market, capital allocation decisions can mean the difference between sustaining relevance and fading into obscurity. Richemont, the Swiss luxury conglomerate behind iconic brands like Cartier and Van Cleef & Arpels, has navigated these challenges with a strategic focus on high-margin jewelry and disciplined portfolio management. Yet, as Berenberg analysts have noted, the Group’s reliance on volatile markets and select divisions poses risks that investors must weigh against its growing dominance in jewelry. Here’s why now is the time to reevaluate Richemont—and where its peers are falling short.

The Capital Allocation Playbook: Jewelry as the Engine

Richemont’s capital allocation strategy is a masterclass in prioritizing sectors with enduring value. Jewelry Maisons (Cartier, Van Cleef & Arpels, Buccellati) delivered an 8% sales rise in FY2025 to €15.3 billion, underpinned by a 31.9% operating margin—far outpacing the struggling Specialist Watchmakers division. This focus has been bolstered by strategic acquisitions like the Italian jewelry brand Vhernier (2024) and the elevation of G/FORE to a standalone brand, both of which tap into modern luxury demographics.

Meanwhile, the Group’s €8.3 billion net cash position as of Q1 2025 provides ample room for further investments, share buybacks, or dividend hikes. The proposed 9% dividend increase (to CHF 3.00 per share) signals confidence in sustained cash flows, contrasting sharply with peers like Kering, which prioritizes reinvestment over shareholder returns.

Berenberg’s Concerns: Navigating Watch Sector Headwinds and Asia Exposure

Berenberg’s skepticism centers on two key vulnerabilities:
1. Specialist Watchmakers’ Decline: Sales fell 13% in FY2025 due to weak demand in China and currency pressures from the Swiss franc’s strength. While Europe and the Americas are compensating, the division’s margin collapsed to 5.3%, underscoring operational fragility.
2. Geopolitical Risks in Asia: Asia Pacific sales dropped 13%, reflecting China’s shifting luxury consumption patterns and geopolitical tensions.

Yet, these risks are mitigated by Richemont’s regional diversification (Europe +10%, Americas +16%) and its pivot toward direct-to-client sales (76% of total sales), which insulate margins from wholesale volatility. Compare this to LVMH’s reliance on fashion (e.g., Dior, Fendi), which faces its own inventory overhang challenges, or Kering’s leather goods exposure, now facing slowing demand in mature markets.

High-Conviction Sector Exposures: Jewelry vs. Fashion

Investors must choose between asset-heavy fashion houses (LVMH, Kering) and asset-light, margin-rich jewelry players like Richemont. Jewelry’s allure? It’s less cyclical, commands premium pricing, and benefits from cultural capital (e.g., Cartier’s timeless appeal).

Richemont’s M&A strategy further underscores its focus: divesting non-core assets (e.g., YNAP’s sale to Mytheresa in 2025) to concentrate on high-margin segments. This contrasts with LVMH’s sprawling portfolio (wine, beauty, watches), which dilutes focus, and Kering’s underperforming Puma division.

Actionable Insights for 2025 and Beyond

1. Buy Richemont (CFR) for Jewelry Dominance: Its jewelry brands are recession-resistant and poised to capture rising wealth in regions like the Middle East and the Americas.
2. Short Kering (PRTP) on Fashion Overhang: Its reliance on leather goods and struggling stockpiles make it vulnerable to slowing demand.
3. Underweight LVMH (MC) for Margin Dilution: Its broad portfolio may underperform as investors favor pure-play luxury asset allocators.

Final Call: Act Now Before the Luxury Shift Accelerates

Richemont’s disciplined capital allocation—bolstered by a fortress balance sheet and strategic exits—positions it to capitalize on the jewelry boom. While risks remain in watches and Asia, the Group’s focus on high-margin, heritage-driven brands and geographic diversification makes it the best play on the luxury sector’s structural shift post-2025 Q2. Investors ignoring this are missing a once-in-a-decade opportunity to own the future of luxury.

The time to act is now.