Luxury watch retailer Watches of Switzerland (WOSG) has revealed an ambitious plan to more than double profits by 2028 overshadowing a resilient second quarter and boosting the shares by almost a tenth to the top of the FTSE 350 leader board.

The shares have roughly halved this year after a slowdown in sales growth and investor worries that key supplier Rolex may move to a direct sales channel following its takeover of retailer Bucherer.  

After delivering sales and profit growth ahead of its original long-range plan outlined in July 2021 the company now sees adjusted EBIT (earnings before interest and tax) more than doubling by the end of 2028 driven by strong sales growth, sustained growth in average pricing and expansion into pre-owned watches and luxury jewellery.

WHAT DID THE COMPANY SAY?

Chief executive Brian Duffy said: ‘We are excited by the opportunity available to us in the Pre-Owned market, particularly from the new Rolex Certified Pre-Owned programme, which we expect to deliver 20% of new Rolex in the US and 10% in the UK by FY28. 

‘Analog:Shift/Non-Rolex Certified Pre-Owned is expected to deliver sales CAGR of more than 35% and 25% in the US and UK respectively.

‘We also see significant growth potential in the luxury branded jewellery market and we are now perfectly positioned to apply our market leading luxury watch model and expertise in elevating luxury brands to this growing category, which we expect to comprise a substantially larger share of our total revenue as we expand our offer and leverage partnerships with US megabrands.’

HOW DID THE BUSINESS PERFORM?

Group revenues for the first half to 29 October were flat year on year at £761 million but 3% higher in constant currencies. The US continued strong momentum with sales up 5% (11% in constant currencies) while revenues in the UK and Europe fell 4% and jewellery sales dropped 17%.

First half adjusted EBIT is expected to be between £70 million and £72 million compared with £87 million in the prior half year with full year guidance unchanged.

EXPERT VIEWS

Investment director Russ Mould at AJ Bell commented: ‘The business is certainly ambitious and having a clear plan about how it will grow should help to soothe investors worried that it was getting left behind.

‘That said, having a plan is one thing, successfully executing on it is another. The company has now set a new benchmark and failure to hit expectations will not go down well.’

Analyst Eleonora Dani at Shore Capital commented: ‘Overall, the Long Range Plan to FY28F is a detailed blueprint for continued success and market leadership in the luxury watch retail sector.’

Referring to Rolex’s acquisition of Bucherer Dani said ‘We maintain that the acquisition does not compromise the company's underlying prospects.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Steven Frazer) own shares in AJ Bell.

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