Weak demand for luxury watches in Hong Kong and Macau spoiled the picture for Cartier-owner Richemont in the six months to September, and the company warned today it expected a challenging second half.
Shares in the Geneva-based group slumped 9% to their lowest in a month, making them the biggest losers in the European personal and household goods index.
Luxury brands are grappling with weak demand in Hong Kong, where retailers are reducing inventories and closing stores as the broader Chinese economy shudders.
Hong Kong has also been hit by political uncertainty and falling numbers of tourists from mainland China, while sales of luxury goods to Chinese buyers have been impacted by anti-corruption efforts.
Richemont said margins fell in the first six months and demand for luxury watches slowed further in October.
"Headline numbers in watches will take time to recover," the company's chief financial Officer Gary Saage said.
"Wholesale is still extremely challenging and we don't know when that will get better, but we take comfort in that our retail networks in both watches and jewellery are performing," he added.
But Richemont said it was detecting an improvement in mainland China, where Saage said growth had returned in October.
"It's been a long time coming - mainland China in total grew 1% and, clearly, within that our own retail grew significantly," Saage said, promising the company's dividend would be increased in good and bad times.
Richemont makes just over half of its sales via its own stores, whose retail sales were up 13% in the first half at constant currencies, while wholesale fell 6%.
Watch sales represent about half of group sales, followed by jewellery at about a third and clothing, pens and leather goods.
Analysts estimate the group makes 16% of sales in Hong Kong and 8% in mainland China.
The Cartier brand is meanwhile facing a change as CEO Stanislas de Quercize, in the post since the end of 2012, will be replaced in January by Cyrille Vigneron, president of LVMH Japan.
In the second half, Richemont said it will record a net gain of €623m from the merger of its online fashion retail unit Net-A-Porter with YOOX.
Saage said the valuation on the deal had ended up being higher than he had expected.
Half-year sales rose 3% at constant currencies to €5.82 billion, lagging a forecast €5.9 billion, and October sales fell 6%.
Net profit rose 22% to €1.1 billion compared to a forecast €1.2 billion, mainly due to a negative one-off effect a year ago.
Profitability deteriorated, hit by a stronger Swiss franc, but Saage said the gross margin should say stable for the full year.
He also said the group was not planning further price increases and would open 50 to 60 stores this year.