- Luxury watch purveyor chalks up record annual sales
- But US growth slows
- Warns ‘more challenging trading environment’ to continue
Luxury goods retailer Watches of Switzerland (WOSG) delivered another year of record sales and profitability in the 52 weeks to 30 April 2023, with revenues up an impressive 25% and margin expansion continuing.
Yet the shares extended their recent poor run with a 7.5% plunge to 685p after the high-end watches and jewellery seller lowered the top end of earnings guidance for the year just-ended.
Watches of Switzerland also warned the ‘more challenging trading environment’ seen in the second half will persist into the first half of full year 2024.
TOP END OF GUIDANCE TRIMMED
Over the past 18 months, investors have taken the view that Watches of Switzerland could not sustain the high levels of growth seen during the pandemic, but the company has continued to argue that its high level of success reflected a structural shift in the market whereby more people were collecting watches as well as the benefits of expanding geographically.
However today, the purveyor of Rolex, TAG Heuer and Audemars Piguet timepieces said it now expects 2023 adjusted earnings before interest and tax (EBIT) to come in between £163 million and £167 million.
While that would be handily up from the £130 million delivered in 2022, the top end of guidance has narrowed from the company’s earlier £163 million to £175 million range amid a toughening backdrop.
Lapping tough prior year comparatives, Watches of Switzerland anticipates that recent more challenging trading will continue into the first half of full year 2024, even leading to a modest sales decline in the first quarter, before improving in the second half.
US GROWTH SLOWS
Group revenue grew 25% to over £1.54 billion last year, mainly driven by strong growth and price increases in the watches segment which demonstrated ‘the continued dynamism of the category’, according to the company.
But investors were left disappointed by a slowdown in fourth quarter US sales, up 27% year-on-year versus the 36% growth delivered in the third quarter.
WHAT DID THE CEO SAY?
CEO Brian Duffy stressed that while the second half of full year 2023 saw ‘a more challenging trading environment, demand remains strong and continues to exceed supply, with client registration lists continuing to grow.’
He insisted his charge enters the new financial year ‘significantly ahead of where we expected to be in our Long Range Plan following two years of exceptional performance and notwithstanding the macroeconomic backdrop.
‘Our full year 2024 guidance assumes revenue growth of 8 to 11% at constant currency with EBIT margin in line with prior year. We remain confident in our goals to maintain our leadership position in the UK, become the clear leader in the US, and capitalise on our growth potential in Europe.’
EXPERT VIEWS
Sticking with its bullish stance on Watches of Switzerland, Shore Capital attributed the year-to-date share price slump to ‘concerns surrounding US deceleration and the normalisation of second-hand prices. However, the statement released today highlights the positive health of the watches division and the effective execution of the company’s strategy by its management team.’
The broker added: ‘This assessment of the watches division’s strong performance and the management’s ability to adapt reinforces the positive outlook for the company despite recent challenges faced by the stock.’
AJ Bell investment director Russ Mould said the latest update ‘finally shows that cracks are appearing, hence why the share price has taken a dive. In its defence, demand continues to exceed supply. What’s spooked investors is guidance for much slower growth in the new financial year as it flags that more challenging conditions may continue for the near-term.’
Mould continued: ‘There will always be ups and downs with businesses and there is nothing in the latest update to suggest major problems within Watches of Switzerland. It’s simply a reset of growth expectations which has understandably caused the share price to correct.
‘The trouble is that investors have seen other pandemic retail winners fall flat on their face over the past few years and they might worry that Watches of Switzerland’s latest update could be the first in a series of setbacks. The pressure is on for the business to deliver and not be put on the scrapheap along with the online fashion retailers who suffered an almighty post-pandemic hangover.’
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.
LEARN ABOUT WATCHES OF SWITZERLAND
