- Rolex seller reiterates full year guidance
- First half sales and profits tick higher
- Margin and cash flow declines weigh on sentiment
Shares in Watches of Switzerland (WOSG) sank 6.2% to 900p despite the UK’s largest luxury watch retailer reiterating full year 2023 guidance amid ‘continued strong demand’ for high-end timepieces and jewellery.
The Rolex-to-TAG Heuer watch seller’s results for the half to 30 October 2022 were impressive, growth driven by volume increases and price hikes as the company’s longstanding brand partnerships enabled it to continue taking market share.
However, the shares cheapened as investors focused on a modest decrease in margins and a drop in cash flow, the latter reflecting an uptick in new showroom openings and refurbishments to grow the business and investment in inventory ahead of the key Christmas period.
SALES TICK HIGHER
Group sales grew 31% to £765 million in the half, reflecting strong momentum in the US and a robust showing in the UK driven by domestic clientele, with CEO Brian Duffy highlighting an ‘encouraging ongoing improvement in airport business’.
First half pre-tax profit ticked up 28% to £83 million and Watches of Switzerland insisted trading in the first six weeks of the third quarter is in line with expectations.
Duffy commented: ‘Our proven business model, international scale, bold marketing and dedication to client service truly sets us apart, and our client registration lists continue to extend as we attract new clients as well as retain a loyal base of existing ones.’
He added: ‘Trading in the Holiday period so far has been in line with our expectations and our guidance for full year 2023 remains unchanged. We look ahead with confidence as we continue to deliver on our Long Range Plan objectives of maintaining our leadership position in the UK, becoming the clear leader in the US, and capitalising on the growth potential in Europe.’
The FTSE 250 company has opened four mono-brand boutiques in Stockholm and Copenhagen and Duffy believes the Scandinavian regions are ‘under-developed for luxury watch retail and we have very good prospects for growth’.
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould said: ‘While some people may only be able to afford small Christmas presents this year, there is also a large group of individuals who still have the means to splash the cash. That might explain why demand remains very strong for luxury goods such as Rolex watches.
‘Many people are on waiting lists for watches, such is the demand, and a lot of these won’t even put the product on their wrist once obtained. It’s about prestige - either displaying the watch in a cabinet at home or storing it safely in the hope that it appreciates in value. Often shelling out tens of thousands of pounds, watches are serious purchases and history suggests they can significantly rise in value.’
Mould added: ‘The company has increased its inventories, partially down to opening new showrooms. But unlike many retailers, Watches of Switzerland is not worried about being left with surplus stock. It is confident these watches will be shifted in no time at all.’
DISCLAIMER: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Martin Gamble) own shares in AJ Bell.
