Interactive Investor

ii view: Watches of Switzerland details ambitious growth plan

Despite growing sales, 2023 has been a year to forget for this FTSE 250 company, with its share price down over a third. We assess prospects.

7th November 2023 16:00

by Keith Bowman from interactive investor

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Watches of Switzerland

Second-quarter trading update to 29 October

  • Currency adjusted revenue up 5% to £379 million

Guidance:

  • Reiterates full-year estimates
  • Aims to more than double sales and profits by the full year 2028

Chief executive Brian Duffy said:

"I am pleased to report an improved Q2 trading performance, notwithstanding the difficult consumer environment. Our proven business model, the strength of our brand partnerships, international scale, bold marketing campaigns and dedication to exceptional client service, continues to drive the business forward.”

ii round-up:

Luxury watch retailer Watches of Switzerland Group (LSE:WOSG) today detailed improved quarterly sales as it both maintained full-year estimates and outlined a target to more than double sales and profits by the full year 2028. 

Second-quarter currency adjusted sales to late October climbed 5% year-over-year to £379 million, with the company  still on track to achieve annual sales growth of between 8% and 11% and a flat profit margin year-over-year.

Shares in the FTSE 250 company moved more than 10% higher in UK trading having come into this latest news down by just over a third year-to-date. That compares to a 13% fall for watch maker The Swatch Group AG Bearer Shares (SIX:UHR) in 2023 and a near-6% decline for the FTSE 250 index itself.

Watches of Switzerland sells both watches and jewellery across the UK, US, and parts of Europe. Currency adjusted US sales improved 11%, helped by the rollout of its pre-owned Rolex certified programme. UK and European revenues remained flat, hindered by outlet closures due to showroom upgrades, which are due to reopen before Christmas. 

The retailer pointed to an overall robust picture, with demand exceeding supply and average selling prices continuing to rise. These factors also fed into its separately outlined long range growth plan, with moves including a push into luxury jewellery and an expansion of its US footprint, all helping it hopefully more than double sales and profit out to 2028. 

First-half results are likely to be announced in mid-December.  

ii view:

Tracing its history back to 1924, the company is today the UK's largest retailer of Rolex, OMEGA, Cartier, TAG Heuer and Breitling watches. Operating 211 stores, its sells via the five brands names of Watches of Switzerland in both the UK and US, Mappin & Webb and Goldsmiths in the UK, and Mayors and Betteridge in the US. Luxury watch sales account for almost 87% of overall sales, jewellery a further 8%, and servicing, repairs and insurance the balance of 5%. 

For investors, a move in August by Rolex to buy a rival watch retailer spooked investors regarding its relationship with this key supplier. Costs for businesses generally remain elevated, a challenging economic backdrop persists, while the retailer, unlike rival luxury apparel retailer Burberry Group (LSE:BRBY), does not currently pay a dividend.

On the upside, chief executive Brian Duffy is confident that the company's relationship with Rolex will not change despite its recent acquisition of a rival retailer. Quarterly sales continue to grow, new stores are being added with online avenues also available, while targets to more than double sales and profits by the full year 2028 show ambition.

On balance, and while there are clearly risks here, a consensus analyst target price of over £7 per share implies confidence in the City and that reaction to recent newsflow may have been excessively negative.  

Positives: 

  • Growing geographical diversity
  • Exposure to hard assets in an inflationary environment

Negatives:

  • Uncertain economic outlook
  • No dividend payment

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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