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

The global luxury sector is currently navigating a cyclical slowdown, marked by macroeconomic headwinds, shifting consumer preferences, and regional imbalances that are weighing heavily on sales. Amidst this challenging landscape, one company stands out: Richemont. Its jewelry division has defied the downturn, achieving an impressive 11% sales surge in the final quarter of fiscal 2024/25. This performance not only outpaces its peers but also underscores 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 broader underperformance in the luxury sector creates valuation gaps and highlights the durability of its jewelry franchises.

Jewelry’s Resilience Amidst Sector Challenges

While the broader luxury market grapples with slowing sales, margin pressures, and shifting regional demand, Richemont’s jewelry division has emerged as a pillar of stability. Key data points illustrate its contrarian edge:

• Sales Growth: The jewelry division recorded an 11% growth in Q4 2024/25 (constant currency), driven by double-digit gains in the Americas (+15%), Japan (+25%), and the Middle East/Africa (+20%).
• Full-Year Performance: For the full year, jewelry sales grew by 8% to €15.3 billion, accounting for 71% of total group sales. In contrast, the struggling watch division saw a decline of 13%, dragging down overall performance.
• Operating Margins: With operating margins of 31.9% in jewelry, Richemont significantly outperformed the broader sector, which is experiencing margin erosion. This success can be attributed to disciplined pricing, cost controls, and a focus on high-margin heritage brands like Cartier and Van Cleef & Arpels.

In comparison, LVMH (PAR:LVMH), often seen as the luxury sector’s bellwether, reported flat growth in its watches and jewelry division, despite gains from Tiffany. This divergence highlights Richemont’s superior execution in jewelry, a category increasingly favored by affluent consumers seeking value-retaining, timeless assets over fleeting fashion trends.

Why Jewelry is the Contrarian Play in Luxury Today

Demand for Durability and Value Retention

As consumers become more price-sensitive and wary of volatile markets, jewelry’s status as a hard asset—known for long-term appreciation and liquidity—gains traction. Richemont’s brands cater to this trend, with Cartier’s iconic designs (like the Love bracelet) and Van Cleef & Arpels’ heritage collections appealing to buyers seeking pieces that hold or increase in value over time. Jewelry sales are less cyclical than those of apparel or accessories, as demand is often tied to life milestones such as weddings and anniversaries, as well as wealth preservation.

Regional Diversification Buffers Asia Risks

While LVMH and Kering (Gucci’s parent) have been adversely affected by China’s sluggish luxury market, Richemont’s jewelry division benefits from balanced exposure. Growth in the Americas and the Middle East has offset declines in the Asia-Pacific region, particularly in China, Hong Kong, and Macau, where sales fell by 14%. The Middle East has emerged as a double-digit growth engine, attracting young, high-net-worth buyers who view jewelry as both a status symbol and an investment.

Margin Resilience in a Cost-Pressure Environment

Rising gold prices and operational costs have squeezed margins across the luxury sector. However, Richemont’s focus on direct-to-consumer sales—accounting for 85% of jewelry sales—and selective store openings, such as new flagship boutiques in Dubai and Tokyo, have insulated the company from third-party retailer markdowns.

Investment Thesis: Buy Richemont for Contrarian Alpha

For investors looking to capitalize on the luxury sector’s shakeout, Richemont presents three compelling advantages:

1. Valuation Attractiveness: Despite its strong performance, Richemont trades at a discount to LVMH on sales and earnings multiples. This discrepancy reflects lingering concerns over its watch division and broader market pessimism.

2. Structural Tailwinds: Jewelry’s rising share of luxury spending—now over 30% in key markets—positions Richemont to outperform its peers in the next 1–2 years, especially as it serves as a “store of value” during economic uncertainty.

3. Dividend and Cash Flow Stability: With €7.9 billion in net cash and a robust 20.9% operating margin, Richemont is well-equipped to weather soft patches while returning capital to shareholders.

Risks and Considerations

While the outlook for Richemont is promising, several risks warrant consideration:

• Overreliance on China’s Recovery: Although Richemont has diversified its market exposure, a prolonged slowdown in China could pressure margins.

• Gold Price Volatility: Rising gold costs could impact profitability if pricing adjustments lag behind operational expenses.

• Competition from Smaller Players: Emerging brands like India’s Tanishq are gaining traction in developing markets. However, Richemont’s heritage brands remain untouchable in the premium segments.

Conclusion: A Gem in a Slump

The current slump in the luxury sector serves as a test for both brands and investors. Richemont’s jewelry division has demonstrated remarkable resilience, offering a rare combination of stability, margin strength, and contrarian appeal. For investors willing to look beyond the sector’s headlines, positioning in Richemont now—while valuations remain depressed and peers falter—could yield substantial rewards as the luxury cycle stabilizes.

In a world dominated by fleeting trends, timeless jewelry stands out as one of the few luxury categories that transcends economic cycles. Richemont’s mastery in this space makes it a must-watch in 2025.