By Andrea Figueras


Cartier owner Richemont reported a steep sales drop in China in its most recent quarter, the latest luxury group to take a hit from weak demand in a market that was once a growth engine for the industry.

The company said Tuesday that sales grew in its fiscal first quarter across all regions except for Asia-Pacific due to sharp declines in China, Hong Kong and Macau, reflecting a low level of consumer confidence there.

The Swiss jeweler and watchmaker became the latest luxury company to post weaker sales in China. On Monday, luxury companies Burberry Group and Swatch Group sounded the alarm about demand in China, while Germany's Hugo Boss also cited tough conditions in the country as it cut guidance for the year.

Investors are scrutinizing how companies fare in China as consumers cut back on spending in the context of a broader economic slowdown compounded by a downturn in the real-estate market. Wealthy Chinese shoppers have for years fueled growth in the luxury sector, but they are reining in spending on expensive clothes, bags and accessories amid a lackluster recovery from the Covid-19 pandemic.

For the quarter to June 30, Richemont booked sales of 5.27 billion euros ($5.74 billion), compared with EUR5.32 billion in the prior-year period. The result came broadly in line with analysts' forecasts of EUR5.28 billion, according to a poll of estimates compiled by Visible Alpha.

Excluding currency fluctuations, the company's sales grew 1% in the quarter, which Richemont defined as resilient.

Sales in China, Hong Kong and Macau plummeted 27%. By contrast, sales climbed 59% in Japan and 10% in the Americas adjusted for currency movements.

As analysts had expected, the group reported diverging results for its two main divisions.

Jewelry Maisons--the core business that houses brands Cartier and Van Cleef & Arpels and that is closely watched by investors--generated sales of EUR3.66 billion, up 4% at constant exchange rates. Analysts had forecast sales of EUR3.64 billion for the key division, according to Visible Alpha.

The performance of Richemont's jewelry division should offer some relief, particularly in a challenged luxury sector that is showing different trends across brands and product categories, RBC Capital Markets analyst Piral Dadhania writes in a research note.

In European morning trade, Richemont shares traded 0.9% higher.

Meanwhile, the group's specialist watchmakers business reported a 13% sales decline at constant exchange rates to EUR911 million due to its strong exposure to Asia-Pacific, falling short of analysts' estimates of EUR996.6 million.

The division--home to brands such as Piaget and Vacheron Constantin--was expected to experience a poor quarter due to weaker Swiss watch exports data in recent months, which showed a continued deterioration since June last year.

Richemont's update came after it appointed new heads for its heavyweight brands Cartier and Van Cleef & Arpels earlier this month, reshuffling its core jewelry division weeks after Nicolas Bos replaced Jerome Lambert as group chief executive.

After years of robust results, particularly during a postpandemic spending euphoria, luxury companies are now experiencing more normalized growth trends, as inflation and high interest rates squeeze consumers. Brands that target the wealthiest clientele have managed to remain relatively resilient, while companies that cater to less rich, younger customers have faced a tougher environment, as these shoppers tend to tighten their belts more.

Richemont is seen by analysts as one of the most exclusive luxury names, thanks to its brands Cartier, Van Cleef & Arpels and Vacheron Constantin, which attract affluent consumers.

LVMH Moet Hennessy Louis Vuitton--considered a bellwether for the industry--is due to report results for the first half next week, which should either give investors some relief or heighten concerns about the sector's health. French peers Hermes International and Gucci owner Kering will also publish results in the coming days.


Write to Andrea Figueras at andrea.figueras@wsj.com


(END) Dow Jones Newswires

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