- Q3 revenue growth slows
- Jewellery sales turn negative
- But luxury watch seller maintains full year guidance
Shares in Watches of Switzerland (WOSG) sank 10% lower to 910p after the UK’s largest luxury watch retailer reported a sales growth slowdown for the third quarter with jewellery sales turning negative.
This spooked investors and overshadowed reiterated guidance for the year to April 2023 from the Rolex, TAG Heuer and Breitling timepiece purveyor, which expects to generate sales in the £1.5 billion to £1.55 billion range with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) flat or up 0.5%, reflecting the current visibility of the supply of key brands.
SLOWDOWN SPOOKS MARKET
For the quarter to 29 January 2023, group revenues rose by a solid looking 17% to £407 million year-on-year.
Yet this represented a slowdown on the second quarter’s 30% growth and the prior year’s 28% increase, creating scepticism over the company’s claims to be relatively insulated from weaker consumer demand thanks to a wealthier clientele and the continuing strong demand for luxury watches.
Third quarter growth was driven by a 22% year-on-year sales increase in the core luxury watch category to £340 million as demand continued to exceed supply.
However, there was disappointment as luxury jewellery sales proved much softer than expected, falling 2% year-on-year to £41 million as Watches of Switzerland’s focus on full price sales and higher average selling prices evidently put off prospective customers.
DUFFY INSISTS ‘DEMAND REMAINS STRONG’
UK sales ticked up 7% to £238 million with growth constrained by the ‘limited return’ of tourist spending, but the US division experienced even stronger growth, with Q3 sales rising 36% to £169 million, reflecting the FTSE 250 group’s ongoing success across the pond.
CEO Brian Duffy commented: ‘Demand remains strong and continues to exceed supply, with client registration lists growing. We exited the quarter with good momentum and are pleased to reiterate our full year guidance.
‘Our expansion into Europe continued with the opening of our fifth mono-brand boutique, with OMEGA in Stockholm in the third quarter. Early trading remains positive, and we are excited to open our first mono-brand boutique in Dublin with TAG Heuer later this month.’
EXPERT VIEWS
Russ Mould, investment director at AJ Bell, said Watches of Switzerland ‘may be taken aback at the scale of the negative reaction to what were otherwise reasonably robust third quarter numbers accompanied by reiterated guidance.
‘Growth in the UK and Europe certainly fell behind the company’s US operations and Watches of Switzerland lamented the fact tourist demand in the UK had yet to return.’
Though the shares are now down 26% over the past year, Shore Capital, which has a ‘buy’ rating on the stock, argued ‘the company’s potential growth trajectory in the fragmented US and EU markets, combined with its well-executed strategy, makes the shares an attractive investment opportunity.’
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.
