Shares in Watches of Switzerland (WOSG) surged 22% higher to 407.5p on Tuesday after the UK’s largest luxury watch retailer issued yet another strong trading update and upgraded full year sales and earnings guidance.

Despite the difficulties created by the pandemic, demand for luxury watches continues to outstrip supply, Watches of Switzerland’s trading momentum has only improved in the second quarter and online and US sales are ticking higher.

UPGRADING GUIDANCE

Drawing confidence from a stronger than expected performance in the second quarter to date, Watches of Switzerland is now guiding for full year 2021 sales of £880 million to £910 million, up from previous guidance of £840 million to £860 million.

The UK’s largest retailer for the Rolex, Cartier, OMEGA, TAG Heuer and Breitling brands is now guiding for an adjusted EBITDA margin 1%-to-1.5% higher year-on-year.

That marks an upgrade on previous guidance for a flat margin performance, while Watches of Switzerland is also predicting year-end net debt of £80 million-to-£100 million compared with previous guidance for net borrowings of between £90 million-to-£110 million.

TICKING OVER NICELY

For the first 10 weeks of the second quarter, which ends on 25 October, Watches of Switzerland’s revenue grew 20.2% to £202.7 million.

Growth was broad based with luxury watches continuing to outperform, luxury jewellery performing well in the UK and USA and new product launches proving more popular than management anticipated. Online sales within the UK are up almost 50% in the quarter to date too.

‘Trading momentum has further improved in Q2,’ enthused chief executive Brian Duffy. ‘Stronger than anticipated UK domestic sales are offsetting lower tourist and airport traffic, whilst regional stores are continuing to outperform London stores.’

Peering across the pond, Duffy pointed out ‘the strong momentum we have established in the US has further accelerated’ and explained ‘all US regions are contributing to this positive trend’.

The CEO did sound a note of caution however, explaining guidance for the balance of the financial year ‘assumes that the positive trend experienced in Q2 will be moderated by the impact of pandemic related retail disruption in the UK and the US and uncertainty in the US economy, impacting mainly in Q3. We do not assume any improvement in recent trends regarding the travel or tourist sectors.’

TAKEAWAY TIME

Shore Capital’s key takeaway is ‘the resilience of the trading performance in the UK given the lack of footfall from tourists and lower airport sales, together with a step on in the US sales’.

The broker thinks that Watches of Switzerland’s strategy of ‘selective refits to stores, together with its proprietary CRM system to target consumers will aid further growth. In our view, this is a management team executing its strategy well and adapting to the unprecedented market conditions.’

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Issue Date: 06 Oct 2020