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Richemont shares rallied the most in three years as strong appetite for Cartier jewelry and IWC watches during the holiday season signaled consumers still want to splurge on luxurious bling.

The improvement comes as a relief to investors after a first half that was marred by protests and store closures in Hong Kong and contracting profitability in the jewelry business. The shares gained as much as 5.7%.

The results suggest consumers are still willing to spend big on luxury goods even as the global economy cools. Household spending has held up in many developed economies thanks in part to strong labor markets and low unemployment, particularly in the U.S.

Growth was led by jewelry, while Richemont’s watchmaking unit rebounded from a first-half decline in the first half. Flat wholesale revenue, which had retreated in previous years, showed Richemont is making progress in weeding out distribution partners in an attempt to avoid excess inventory at watch retailers.

“The jewelry improvement will allay fears that the product was losing its luster,” said Jon Cox, an analyst at Kepler Cheuvreux. “In Cartier, the company has the world’s strongest jewelry brand.”

Richemont soon will face more intense competition in jewelry after LVMH agreed to buy Tiffany & Co. for $16 billion last year. Analysts expect the U.S. brand will be a stronger rival to Cartier under its new French owners.

Other watchmakers and luxury companies rose in early trading. Swatch Group AG gained as much as 3.1% and Kering SA climbed 1.4%. Luxury leader LVMH added 0.9%.

One disappointment for investors was the online distributor unit, which slowed to 2% from double-digit growth in the six months through September. The company blamed the deceleration on increasing competition on pricing and storm damage to a warehouse in Landriano, Italy, that supplies its Mr Porter site.

Sales in Japan declined as tourists stayed away due to a strong yen and the implementation of a value-added tax increase in October. Protests in Hong Kong had a severe impact on the business, but declines in both countries were offset by demand elsewhere.

“The core jewelry and watches business even look better off than anticipated, considering the temporary pause in Japan and the strong headwinds in Hong Kong,” Luca Solca, an analyst at Sanford C. Bernstein, wrote in a note.

Sales climbed 4% excluding currency shifts, reaching 4.16 billion euros ($4.6 billion) in the three months through December.

(Updates shares in second, seventh paragraphs.)

--With assistance from Fergal O'Brien.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman

©2020 Bloomberg L.P.

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