ii view: luxury gains for Watches of Switzerland

Shares in this seller of posh watches remain near their all-time high. We assess prospects. 

First-quarter trading update to 1 August 2021

• Revenue doubled to £297.5 million compared to Q1 last year
• Revenues up 45.8% on the same period two years ago
• Net cash of £23 million, up from net debt of £92 million in Q1 last year

Chief executive Brian Duffy said:

"We have had a very good start to the new financial year with a further acceleration in momentum, versus pre Covid-19 pandemic growth levels, underpinned by diversified growth across our markets and categories.

"We will continue to invest for growth and to advance our strategy to further enhance our leading position in the UK and become a leader in the US luxury watch market."

ii round-up:

Watches of Switzerland Group (LSE:WOSG) is a retailer of both luxury watches and jewellery across the UK and USA.

Operating just over 150 stores, it sells via four brand names. Watches of Switzerland in the UK and US; Mappin & Webb and Goldsmiths in the UK; and Mayors in the US. 

Its outlets also include 42 dedicated mono-brand stores in both the UK and US working in partnership with Rolex, TAG Heuer, OMEGA, Breitling, Audemars Piguet, Tudor and FOPE. 

For a round-up of this latest trading update, please click here. 

ii view:

Luxury watches accounted for 87% of overall sales during its last financial year. The balance of sales is split almost equally between luxury jewellery and servicing, repairs and insurance services. On a geographical basis, the UK accounted for three-quarters of overall sales during this latest quarter to the start of August, the USA the balance.   

Its six strategic priorities include growing revenue, profit and return on capital employed; driving customer awareness and brand image; and expanding its multi-channel leadership. It currently operates six transactional websites, with ecommerce business more than doubling over its last financial year. 

For investors, stores at London’s Heathrow airport remain under the shadow of hindered international travel and reduced footfall. An estimated price/earnings (PE) ratio in the 30’s is not obviously cheap when compared to other luxury brands such as Burberry (LSE:BRBY) in the 20’s, and the company is yet to pay a dividend.  

That said, the sale of hard assets in an era of central bank money printing has some attraction. So do growing online sales and potential expansion in other regions such as Europe. In all, and while the shares remain worth monitoring for the long term, a 70%-plus gain in the share price year-to-date looks to leave them up with events for now. 

Positives: 

• Growing online sales
• Exposure to hard assets

Negatives:

• Tourist sales remain hit by Covid-19
• No dividend payment

The average rating of stock market analysts:

‘Strong hold’