ii view: why Watches of Switzerland shares just ticked lower

Full-year results to 27 April

• Currency adjusted revenues up 8% to £1.65 billion
• Adjusted profit (EBIT) up 11% to £150 million
• Net debt of £96 million in late April is down from net cash of £1 million

Guidance:

• Expects the adjusted profit margin for the year ahead of flat to down 1%

Chief executive Brian Duffy said:

"I am proud of the strong performance our team has delivered, underpinned by a significant trading improvement in H2 FY25. Our US business has continued its excellent momentum, surpassing $1 billion revenue for the first time, bolstered by the acquisition of Roberto Coin Inc.

"As we look ahead, whilst we are of course remaining mindful of the broader macroeconomic and consumer environment, including potential US tariff changes, we remain confident in the strength of our diversified business model, our strong pipeline of showroom openings and growth projects, and the resilience of the luxury watch and luxury branded jewellery categories."

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ii round-up:

Specialist retailer Watches of Switzerland Group (LSE:WOSG) today reported record annual revenues but offered a disappointing outlook due to the potential impact of US trade tariffs. 

Sales in the year to late April rose 8% to £1.65 billion, with a 0.3% gain in the profit margin to 9.1% helping drive adjusted profit up 11% to £150 million. However, accompanying management outlook comments mentioned the uncertain economic outlook and potential US tariff changes, which could trigger a reduction of up to 1% in the adjusted profit margin in the year to April 2026. The City was expecting a forecast closer to a gain of 0.2%.

Shares in the FTSE 250 company fell 7% in UK trading having come into these latest results down by a quarter so far in 2025. That’s comfortably below a near 5% gain for the FTSE 250 index itself year-to-date. Sporting goods maker adidas AG (XETRA:ADS) is down by around a tenth during that time. 

Watches of Switzerland operates 208 stores across the UK, US and Europe via brands including Mappin & Webb and Goldsmiths in the UK and Mayors and Betteridge in the US.  

The Leicestershire headquartered retailer expects growth in currency adjusted revenues of between 6% and 10% for the year ahead, but flagged watch price rises by Swiss makers given a current 10% US tariff on exports to the country. 

Watches of Switzerland sales in the US accounted for just under half of all revenues during this latest year, with the UK and Europe the balance.

Second half US sales accelerated to growth of 19% on a currency adjusted basis, up from growth of 11% in in the first half. UK and European sales rose 6% during H2, recovering from a fall of 1% in H1.

Capital expenditure for the year ahead, largely on new outlets, is expected to come in at £65-70 million, down from expansionary expenditure of £73 million in the year just gone. 

Net debt of £96 million in late April is down from net cash of £1 million the year before, and comes largely following its acquisitions of online watch platform Hodinkee and luxury jeweller Roberto Coin.

A first-quarter trading update may be announced mid-August.  

ii view:

Watches of Switzerland is the UK's largest retailer of Rolex, OMEGA, Cartier, TAG Heuer and Breitling watches, with its overall store portfolio including 94 dedicated mono-brand stores working in partnership with Rolex, TAG Heuer, OMEGA, Breitling, Grand Seiko, Bvlgari and FOPE. Luxury watches accounted for 82% of overall sales during this latest year, with luxury jewellery a further 13%, and servicing, repairs, and insurance the balance of 5%.

For investors, US trade tariffs raising costs and potentially pressuring profit margins for the year ahead cannot be overlooked. The broad economic outlook and potential impact on consumer spending remains tough to call. A previous move by Rolex to buy a rival watch retailer worried investors amid concerns that it may affect the watch retailer’s relationship with a key supplier. In addition, and unlike high-end rival retailers Hugo Boss AG (XETRA:BOSS) and Dr. Martens Ordinary Shares (LSE:DOCS), Watches of Switzerland does not currently pay a dividend.

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To the upside, sales for the retailer’s key markets improved during the second half. New showrooms such as stores in Manchester and Newcastle continue to be opened. Chief executive Brian Duffy previously expressed his confidence that its relationship with Rolex would not change despite the watch maker's purchase of a rival retailer. A £25 million share buyback was launched in March, while luxury watches are arguably now seen as an investment as well as a status symbol and timepiece.

In all, despite ongoing store expansion and a consensus analyst estimate of fair value above 450p per share, it appears that a healthy dose of caution remains sensible given the latest update demonstrates potential for shocks. That said, near-term direction could well be determined by the outcome of tariff negotiations. 

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:

Strong hold