A fall in the value of previously buzzy tech stocks will make it difficult for luxury company Richemont to unload its most troublesome brand, Yoox Net-a-Porter.

On Friday, shares in the maker of Cartier watches and jewelry, formally known as

Compagnie Financière Richemont,

CFRUY 4.48%

dropped 13.1%. The company’s operating profit for the year through March was around a 10th below the 3.8 billion euros, equivalent to $4 billion, expected by analysts, although this is partly explained by costs linked to the company’s decision to stop selling its goods in Russia. But investors also wanted a detailed update on talks between

Farfetch

and YNAP about some kind of tie-up, which didn’t materialize.

Richemont’s stock was one of the luxury sector’s top performers in 2021, gaining 70% over the year. The global market for high-end jewelry has been booming and shareholders expected the company’s operating margins, which are low for a major luxury-goods name, to increase.

They did, but perhaps not enough. Richemont’s margin was 17.7%, up 6.5 percentage points compared with the previous fiscal year. However, that still significantly lags behind the roughly 39% and 27% margins at handbag maker

Hermès

and Louis Vuitton’s owner

LVMH,

respectively.

Narrowing this gap further will take longer than hoped. Although sales of Richemont’s jewelry brands are strong, the division’s operating margin of about 34% was lower than expected. Costs of inputs like gold and diamonds are up and advertising budgets have increased, but the company isn’t raising prices as aggressively as some other luxury brands. Richemont is charging more to offset higher labor costs and shifts in exchange rates, but not enough to dazzle investors.

A sale of troubled online-fashion retailer YNAP would help Richemont’s share price. The “online distributors” division, which also includes watch reseller Watchfinder.com, lost €210 million despite heavy investment. YNAP will continue to burn cash as it changes its operating model from one where it owns all of the inventory sold on the site to a marketplace that gives brands greater control over sales in return for concession fees.

Richemont said late last year that it is in talks with New-York listed Farfetch. Options being discussed include Farfetch becoming a minority owner of YNAP alongside other investors, or some other kind of technology partnership. The two have worked together before. Richemont took a stake in Farfetch in November 2020 as part of a three-way joint venture in China with tech giant

Alibaba.

However, Farfetch’s stock has plunged as loss-making tech names fall out of fashion with investors. Since word of talks between the companies late last year, Farfetch’s market value has fallen from around $16 billion to $3.3 billion today. This isn’t a great time to commit capital to fund a merger, or even a minority stake in its rival.

Richemont’s lucrative watch and jewelry businesses may be the gems that investors are interested in. But they also need a clean break from YNAP, and it seems unlikely any time soon.

Write to Carol Ryan at [email protected]

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Appeared in the May 23, 2022, print edition as ‘Tech Rout Threatens to Tarnish Cartier’s Owner.’

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