ii view: Watches of Switzerland's US profit ticks above UK

First-half results to 26 October

• Currency adjusted revenues up 10% to £845 million
• Adjusted profit (EBIT) up 6% to £69 million
• Net debt down 7% to £112 million

Guidance:

• Continues to expect total currency adjusted revenues up by 6-10%
• Continues to expect the adjusted profit margin for the year ahead of flat to down 1%

Chief executive Brian Duffy said:

“We welcome the recent reduction in US tariffs on Swiss imports, which is a positive development for the sector.

"The second half of the year has started well. Trading is in line with expectations, and we are well placed as we enter the Holiday trading period.

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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, Europe and the US. 

Operating 196 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 84 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 4 December, please click here

ii view:

Headquartered in Braunstone, Watches of Switzerland is the UK's largest retailer of Rolex, OMEGA, Cartier, TAG Heuer and Breitling watches. The FTSE 250 company employs around 3,000 people. Luxury watches accounted for 84% of overall sales during this latest period, with luxury jewellery a further 12%, and servicing, repairs, and insurance the balance of 4%. The UK and Europe generated 52% of sales during this latest half with the US the balance of 48%.

For investors, 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. A previous move by Rolex to buy a rival watch retailer worried investors regarding the relationship with this key supplier, while Watches of Switzerland, unlike other high-end rival retailers 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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On the upside, double-digit growth in US revenues during this latest period helped profit there make up 59% of the overall total. Initiatives to assist performance have included a readjustment of the group’s store portfolio. Chief executive Brian Duffy previously expressed his confidence that its 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 a status symbols and instruments to tell the time.

In all, exposure to consumer spending in the UK and US offers some room for caution. That said, the attractiveness of luxury watches as investments will likely see investors continuing to take interest in this major time piece play.  

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