ii view: reason for optimism at Watches of Switzerland

Shares in this specialist FTSE 250 retailer are down by more than a third year-to-date. Buy, sell, or hold?

First-quarter trading to 31 July

• Currency adjusted revenue up 25% to £391 million
• Reiterated previous full-year guidance for adjusted profit (EBITDA) flat to up 0.5% 

Chief executive Brian Duffy said:

"The first quarter continued with strong momentum throughout, and we carry this positive momentum into the second quarter. Despite the well-publicised concerns about the macro-environment, demand for our products remains robust with client registration of interest lists continuing to extend.

"We continue to focus on attracting new clients and growing market share in the UK and US. We have seen positive early results from our expansion into Europe. As we continue to invest in our multichannel model and new incremental projects, we remain confident in our long range plan.”

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ii round-up:

Watches of Switzerland Group (LSE:WOSG) is a retailer of both luxury watches and jewellery across the UK, US and an early presence in Europe.

Operating just over 170 stores, it sells via five brand names - Watches of Switzerland in the UK, Europe and US; Mappin & Webb and Goldsmiths in the UK only; and Mayors and Betteridge in the US only. 

Its outlets also include 58 dedicated mono-brand stores in both the UK and US working in partnership with Rolex, TAG Heuer, OMEGA, Breitling, Grand Seiko, Bvlgari and FOPE. 

For a round-up of this latest trading update on 16 August, please click here. 

ii view:

Luxury watch sales account for around 87% of overall sales, with the balance split between luxury jewellery and servicing, repairs and insurance products. On a geographical basis, the UK and a newly established European presence accounts for around three-fifths of overall sales and the USA the balance. 

For investors, an uncertain economic outlook including rising interest rates and a cost-of-living crisis cannot be overlooked. Costs for businesses generally are rising, currency moves can hinder sales overseas, while the company, unlike rival luxury apparel seller Burberry Group (LSE:BRBY), does not currently pay a dividend.

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On the upside, sales continued to grow during this latest quarter. A foothold in Europe has also been established with the opening of an outlet in Stockholm, Sweden and further stores targeted. There are store expansions too, such as its pending move to Old Bond Street, London in 2023.

On balance, and while concerns for a global economic slowdown warrant caution, an estimated analyst consensus target price of over £13 per share continues to offer grounds for guarded optimism over the long term.   

Positives: 

• Growing geographical diversity
• Expanding ecommerce sales

Negatives:

• Uncertain economic outlook
• No dividend payment

The average rating of stock market analysts:

Buy