Monday, August 6, 2012
Something is happening here and you don't know what it is - do you Mr Hempton: Richemont edition
This company sells very fine jewellery and high end watches. By high-end I mean up to half a million dollars.
Richemont is - as I said in the original post - an amazing company that has managed to make super-luxury goods ubiquitous whilst they remain exclusive.
The sales rise during the first four months is 24 percent (16 percent in constant currencies).
We have a broken thesis rule at Bronte. We search for things that falsify our thesis - and when we find them we close our position. This big sales increase tells me that something is happening in this business that is outside my thesis and not obviously consistent with the thesis.
So we just covered. Loss to clients was about 40bps of our funds under management. It was not the first time and it will not be the last time we make a mistake...
As of about five minutes ago we no longer have any interest in Richemont, long or short. But that won't stop me trying to work out what we did wrong. The sales increase is enormous given current economic trends. Lets think this through by jurisdiction...
I would expect a (big) sales increase in Japan because the previous corresponding period includes the earthquake and tsunami.
I would be startled by anything other than a sales decline in Europe. There is an economic crisis there and as one of my correspondents put it - the one percent are becoming the half a percent.
North America is doing OK - so I would expect a sales increase - but low single digit.
South America will - like Australia - be beginning to feel some commodity price anxiety - so sales increases will be small.
The anecdotal stuff out of China and Hong Kong is all bad. Correspondents sent me many anecdotes - all supportive of my thesis - and the plural of anecdote has always been data.
None of this allows for a twenty percent sales increase.
I have heard only one alternative thesis - and that is that sales within Mainland China are increasing - not because they want the watches and jewellery but because they are portable wealth that you can move over a border with or store like gold. It might be true - but watches and jewellery strike me as poor stores of value. The anecdotes in my email suggest that the gray market is weak - but those anecdotes are so thin that I doubt them.
Any other thoughts - because I am at a loss.
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