Shares in high end timepiece purveyor Watches of Switzerland (WOSG) ticked 2.75p higher to 223.25p on news of better than expected full year sales, boosted by a surge in online sales during the lockdown period.
Understandably Watches of Switzerland has pulled previously issued guidance for 2021 amid COVID-19 uncertainty, yet there was relief as the Rolex watches-to-prestige jewellery retailer insisted it has sufficient financial headroom to sustain operations given continued store closures and subdued consumer sentiment for a prolonged period.
CLOCKING UP THE SALES
Watches of Switzerland’s e-commerce sales surged 45.8% higher during the 6 weeks to 26 April, as well-heeled buyers logged on during lockdown, with sales only accelerating during the month of April.
In response to current disruptive market conditions, the UK’s largest retailer for Rolex, Cartier, Omega, TAG Heuer and Breitling watches has enhanced its online proposition by offering several new brands, which were previously only available instore.
Coping with the coronavirus crisis could bring an enduring benefit for the business in the online channel over time.
Booming online sales helped drive group revenue for the year to 26 April 2020 up 5.9% to £819.3m, ahead of the recently guided £809m-to-£812m range, with Watches of Switzerland now expecting to clock up an annual adjusted EBITDA of between £75m and £78m for 2020.
Performance had been strong for the first 46 weeks of the year when the lockdown of stores came into effect; its US stores closed from 19 March and the UK stores were shuttered from 23 March.
‘Prior to the COVID-19 pandemic, the group had been on track to deliver double-digit sales growth, reflecting our strong brand partnerships, favourable market conditions and accelerating momentum in the US,’ explained chief executive Brian Duffy.
Despite the current challenges, he said demand for luxury watches has ‘remained strong with online sales performance ahead of our expectations’ and remains ‘confident the strong fundamentals that underpin the luxury watch category remain intact and will do so as we emerge from the current situation.
Luxury watches continue to be a supply-driven segment with robust demand and unique value preservation characteristics.’
Longer term, Duffy believes his charge is ‘well positioned to deliver on our plans to leverage our leading position in the UK and become a leader in the US luxury watch market.’
LIQUIDITY UPDATE REASSURES
Watches of Switzerland reacted swiftly to the coronavirus crisis through cash preservation and cost control programmes. Net debt amounted to £131.4m at the year-end, since when Duffy has strengthened the company’s liquidity position with additional financing arrangements.
A new £45m facility has been agreed as part of the government Coronavirus Large Business Interruption Loan Scheme (CLBILDS). Total available facilities in place for the company are £265m and its liquidity post-refinancing is around £83m.
Shore Capital regards this as ‘a reassuring trading update from Watches of Switzerland. Prior to the COVID-19 crisis this was a company with very good trading and financial delivery momentum. We believe that the group has reacted swiftly to the changing and challenging current circumstances and has outlined sensible cash preservation measures to mitigate some of the current burn.’
The broker added: ‘We do see the luxury goods market fundamentals as largely remaining sound with demand for watches in particular continuing to exceed supply; most markets where demand exceeds supply prosper.’
