Interactive Investor

ii view: Watches of Switzerland sets optimistic tone

Shares in this luxury watch retailer are down by more than a third over the last year, but have risen from recent lows. We assess prospects for the FTSE 250 company.

6th June 2024 15:41

by Keith Bowman from interactive investor

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Fourth-quarter trading update to 28 April

  • Revenue up 4% to £380 million
  • US revenues up 14% to £190 million
  • UK and European revenues down 4% to £190 million

Guidance:

  • Cautiously optimistic for the full year (FY25) ahead
  • Continues to target a more than doubling in sales and adjusted profit (EBIT) by the end of FY28

Chief executive Brian Duffy said:

"We finished the year strongly, with Q4 sales in line with guidance and ahead of consensus. Particularly pleasing was the performance in the US.

“The inherent strength of the categories we operate in, coupled with our superior business model and retail expertise continues to set us apart. We remain focused on executing our Long Range Plan (LRP) and are committed to the targets to more than double sales and adjusted EBIT by the end of FY28."

ii round-up:

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

Operating just over 220 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 99 dedicated mono-brand stores working in partnership with Rolex, TAG Heuer, OMEGA, Breitling, Grand Seiko, Bvlgari and FOPE. 

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

ii view:

Tracing its history back to 1924, Watches of Switzerland is today the UK's largest retailer of Rolex, OMEGA, Cartier, TAG Heuer and Breitling watches. Luxury watches account for 87% of overall sales, jewellery a further 7%, and servicing, repairs, and insurance the balance of 6%. Geographically, the UK and Europe generated 55% of sales during this latest financial year (FY24), and the US the balance of 45%. Other UK stock market listed sellers of luxury personal goods include Burberry Group (LSE:BRBY) and Dr. Martens Ordinary Shares (LSE:DOCS)

For investors, the tough economic backdrop including elevated borrowing costs has affected sales, particularly in the UK over the last festive period. A previous move by Rolex to buy a rival watch retailer also spooked investors regarding the watch retailer’s relationship with this key supplier. Costs for businesses generally remain elevated, while the group, unlike rival luxury apparel seller Burberry, does not currently pay a dividend.

More favourably, management offered cautious optimism regarding prospects for the year ahead (FY25), likely buoyed by hoped-for interest rate cuts. Chief executive Brian Duffy previously expressed his confidence that its relationship with Rolex would not change despite its purchase of a rival retailer. The company's long-term plan, provided in November 2023, to more than double sales and profits by the full year 2028 has been reiterated, while luxury watches are arguably now seen as an investment as well as a status symbol and instrument to tell the time.

For now, and while the consensus analyst estimate of fair value is above 470p and speculative investors might like recovery prospects, more cautious investors might prefer to wait for firmer evidence of a sustained upturn.

Positives: 

  • Growing geographical diversity
  • Offering exposure to hard assets in an inflationary world

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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