Geoffrey Smith 

Investing.com — Luxury stocks across Europe underperformed on Friday after Swiss-based Richemont (SIX:) warned of a big hit to sales from the closure of Chinese boutiques due to COVID-19 lockdowns.

The slowdown of China’s economy is likely to last longer than many people think, Chairman Johann Rupert stated in a webinar that was presented with the full-year results. He said that 40% of his boutiques in China were currently shut down due to lockdowns. 

These news were not enough to distract from a set of strong results. The operating profit increased more than 6 percentage point in March and was nearly doubled over the previous 12 months. Sales rose 44% at constant exchange rates. Rupert suggested that there was strong demand locally in Europe which more than compensated for the decline in inbound travel due to restrictions on pandemic travel. 

The net profit increased 61% to 2,08 billion euro ($2.18 billion), allowing the company increase its dividend by 13%. 

Rupert’s remarks on China dominated responses, due to its outsized significance to some of the most luxurious names in the world. Richemont Over 40% of the company’s global sales come from Asia-Pacific, with the majority coming from China (including the territory of Hong Kong) and Macau. For more than two years, Shanghai, the most important regional market, is under lockdown in different degrees.

Richemont stock fell as high as 11% after the news and hit a seven month low in early trading. It recovered some of its losses to trade at 9.4% as of 5:01 AM ET (0900 GMT). Another luxury company with a large China exposure was also affected: LVMH (EPA) stock declined 0.4% Christian Dior Stock of (EPA) fell 0.6%, and stock of Hermes (EPA) fell 1.0% 

There was only one big stock left in space that managed to escape general underperformance. Burberry (LON) whose broadcast earlier this week had been very well received. Burberry, the highest-end fashion label with an increase of 2.4% is still in good territory.

Rupert warned about the danger of inflation in the future despite it being apparent that most of its clients were not sensitive to price rises. 

“Even if the worst of COVID is hopefully behind us, we face a global environment which is the most unsettled we have experienced for a number of years,” Rupert said in his letter to shareholders. This troubled backdrop is also apparent in the 98 million euro charge to discontinue its Russian business and associated inventory write down of 70 millions euros.