ii view: Watches of Switzerland offers mixed guidance

Third-quarter trading update to 25 January

• Sales consistent with those of the first half

Guidance:

• Now expects total currency adjusted annual revenue up 9-11%, more than previous estimate of 6-10%
• Now expect adjusted profit margin for the year to be down 0.4-1% versus a previous estimate of flat to down 1%

Chief executive Brian Duffy said:

"I am pleased to report another period of strong performance, building on the sales momentum established in the first half and reflecting strong trading over the Holiday period. 

"It is particularly pleasing to be achieving these results despite an unusually volatile operating environment, including macroeconomic uncertainty and tariffs.

"Looking ahead we remain focused on further cementing our market position across both the US and UK, underpinned by our differentiated model, long-standing brand partnerships and disciplined execution."

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ii round-up:

Strong festive trading helped retailer Watches of Switzerland Group (LSE:WOSG) increase forecasts for annual sales growth, although with factors like changes in the product mix possibly resulting in a reduced full-year profit margin.

Third-quarter sales ahead of management estimates now sees forecasts for annual currency adjusted sales growth raised by 1% to 11%. A best-case annual profit margin decline of 0.4% compares to a previous flat estimate. The City now broadly expects to raise current full-year sales estimates by 1% but reduce profit hopes by 3%.  

Shares in the FTSE 250 company retreated 3% in UK trading having come into this latest news down by 15% in 2025. The FTSE 250 index rose 9% last year, while luxury apparel firm Burberry Group (LSE:BRBY) climbed by close to third. 

Watches of Switzerland operates via brands including Mappin & Webb and Goldsmiths in the UK and Mayors and Betteridge in the US.

UK trading for the quarter was consistent with recent periods. US trading enjoyed broad-based growth across categories, brands and price points.

Just before the end of the quarter, Watches of Switzerland announced the acquisition of Deutsch & Deutsch (D&D), a business comprising of four Rolex-anchored showrooms in Texas. D&D’s initial integration is progressing well.

A full-year trading update is likely mid-May.

ii view:

Watches of Switzerland is a retailer of both luxury watches and jewellery across the UK, US and just a few outlets in Europe. Headquartered in Braunstone, it is the UK's largest retailer of Rolex, OMEGA, Cartier, TAG Heuer and Breitling watches. The UK and Europe generated 52% of sales during the first half to late October with the US the balance of 48%. Luxury watches accounted for 84% of overall sales, with luxury jewellery a further 12%, and servicing, repairs, and insurance the balance of 4%.

For investors, costs including investments in the retailer’s US online business are weighing on profit margins. A challenged consumer has seen UK branches closed with recent government Budget measures effectively increasing tax and potentially pressuring spending further. Trade talks between the US and China are ongoing, with any negative outcome possibly crimping US consumer spending, while Watches of Switzerland, unlike other high-end rival retailers H & M Hennes & Mauritz AB Class B (OMX:HM B) and Dr. Martens Ordinary Shares (LSE:DOCS), does not currently pay a dividend.

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More favourably, an upgrade in expected annual sales growth follows double-digit US growth in the first half. Initiatives to assist performance have included a readjustment of the group’s store portfolio. Chief executive Brian Duffy previously expressed his confidence that the company's relationship with Rolex would not change despite its purchase of a rival retailer, while luxury watches are arguably now seen as an investment as well as status symbols and instruments to tell the time.

On balance, , while exposure to consumer spending in the UK and US provides room for caution, the status of luxury watches as investments will likely see investors continuing to take interest in this high-end retailer.  

Positives: 

• Previous bolt-on acquisitions
• Offering exposure to hard assets in an inflationary world

Negatives:

• Uncertain economic outlook
• No dividend payment

The average rating of stock market analysts:

Buy