ii view: Watches of Switzerland profit ticks up but share price rewinds
14th December 2022 11:22
by Keith Bowman from interactive investor
Shares in this luxury watch retailer are down by around two-fifths year-to-date. We assess prospects.
First-half results to 30 October
- Revenue up 31% to £765 million
- Pre-tax profit up 28% to £83 million
- Net debt of £26 million, down from cash of £30 million
Chief executive Brian Duffy said:
"I am pleased with our strong performance in the first half of the financial year which reflects our leadership position and the strength of our longstanding brand partnerships as we continue to take market share.
"We look ahead with confidence as we continue to deliver on our Long Range Plan objectives of maintaining our leadership position in the UK, becoming the clear leader in the US, and capitalising on the growth potential in Europe."
ii round-up:
Specialist retailer Watches of Switzerland Group (LSE:WOSG) today maintained its full-year expectations despite the challenging economic outlook as it reported gains in both sales and profits.
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The seller of both luxury watches and jewellery across the UK, US and Europe reported a near one-third gain in revenues and profits as demand for its high-end products remained robust.
Shares for the FTSE 250 company fell by more than 6% in UK trading, having gained by more than 10% over the last six months. That still leaves them down by around two-fifths year-to-date, more than the one-fifth decline for the wider FTSE 250 index. Shares for fellow luxury goods retailer Burberry Group (LSE:BRBY) are up by around 15% year-to-date while Dr. Martens Ordinary Shares (LSE:DOCS) has more than halved.
US sales for Watches of Switzerland led the way, aided by rising product prices, rising by 60% on a currency adjusted basis to £311 million or by 44% when excluding acquisitions.
UK sales, and including its small but expanding European presence, rose 8% to £454 million. Overall group ecommerce sales climbed 7%.
The specialist retailer opened 20 new outlets during the period as well as making further refurbishment investments in order to enhance the luxury experience for its clients.
Sales for the first six weeks of the third quarter had proved in line with management forecasts, with full year sales still expected to come in at between £1.50 to £1.55 billion, up from last year’s £1.24 billion.
ii view:
Operating just over 185 stores, it sells via five brands 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 73 dedicated mono-brand stores in working in partnership with Rolex, TAG Heuer, OMEGA, Breitling, Grand Seiko, Bvlgari and FOPE. Luxury watch sales account for around 87% of overall sales with the balance split between luxury jewellery and servicing, repairs and insurance products.
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For investors, the highly uncertain economic outlook including rising interest rates needs to be remembered. Costs for business generally are rising, currency moves can harm sales overseas, while the company, unlike rival luxury apparel seller Burberry, does not currently pay a dividend.
More favourably, sales continue to grow with currency movements currently working in its favour. Store numbers are being expanded, including growing its small presence in Europe, while client registration of interest lists continue to offer management some reassurance regarding future demand.
On balance, and while some caution looks sensible, an analyst consensus target price of over £12 per share is encouraging and sellers of high-end goods tend to be more resilient during a downturn.
Positives:
- Growing geographical diversity
- Expanding ecommerce sales
Negatives:
- Uncertain economic outlook
- No dividend payment
The average rating of stock market analysts:
Buy
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