- Sales growth slows in second quarter
- Luxury watch retailer gaining share in UK and US
- Full year guidance upgraded due to currency tailwinds
Shares in Watches of Switzerland (WOSG) ticked 2.3% lower to 894p, despite the UK’s largest luxury watch retailer posting a solid first half update and upgrading earnings guidance once again, as investors focused on the TAG Heuer-to-Rolex seller’s second quarter sales growth slowdown.
Watches of Switzerland is blessed with pricing power conferred by the sale of luxury products that appeal to a well-heeled clientele whose lifestyle shouldn’t be too affected by inflationary pressures.
Yet the slowdown in the quarter to 30 October stoked fears that price rises and cost-of-living pressures are finally impacting demand from its well-heeled clientele.
HOW IS WATCHES OF SWITZERLAND HOLDING UP?
The high-end timepiece-to-jewellery seller delivered strong constant currency growth of 21% to £374 million in the second quarter.
However, this was below the 25% revenue growth generated in the first quarter as the FTSE 250 retailer lapped demanding prior year comparatives.
UK sales growth moderated to 9% with tourist sales remaining ‘very low’, though the OMEGA and Breitling watches purveyor highlighted a ‘consistent performance improvement’ at airports throughout the quarter and said sales were supported by its strong domestic clientele.
In the fragmented US market, sales grew by an impressive 46% to £159 million with organic revenue growth running at 30%, but this was below the 76% growth posted stateside in the first quarter.
CURRENCY SWINGS DRIVE UPGRADE
Watches of Switzerland raised guidance for the year to April 2023 despite prevailing macroeconomic uncertainties, though the upgrade reflected favourable currency swings and its outlook was left unchanged on a constant currency basis.
Management now expects annual sales to be in the £1.5 billion to £1.55 billion range, up from previous guidance of £1.45 billion to £1.5 billion.
Watches of Switzerland also lifted its guidance for adjusted earnings before interest and tax (EBIT) from a £157 million to £169 million range to between £163 million and £175 million.
CEO Brian Duffy highlighted another quarter of ‘strong trading, driven by ‘broad based sales growth across our portfolio of world leading partner brands. Demand remained strong through the quarter and continues to exceed supply, with client registration lists extending as consumers respond to innovative new products, impactful marketing and elevated client service.’
Duffy said the first half proved a busy period of new showroom openings for his charge, including five showrooms at Battersea Power Station in London and ‘additional mono-brand boutiques across the UK, US and now Europe - together with showroom refurbishments as we continue to invest to elevate the luxury experience for our clients.’
THE SHORE CAPITAL VIEW
With shares in Watches of Switzerland having fallen by roughly 40% since the start of the year, Shore Capital believes the valuation is ‘relatively undemanding given the potential growth trajectory in the fragmented US and EU markets.
‘Demand for luxury watches continues to outstrip supply. In our view, this is a management team executing its strategy well and adapting to dynamic market conditions.’
