- No time to panic following Bucherer buy
- US growth rate to reassure investors
- Retailer should reiterate 2024 guidance
2023 has proved a tough time for shareholders in Watches of Switzerland (WOSG) with almost 40% swiped from the luxury watch-to-high end jewellery retailer’s market value amid growth slowdown concerns and a negative reaction to key brand Rolex’s acquisition of its retail partner Bucherer.
Nevertheless, Shore Capital analysts Eleonora Dani and Clive Black remains bullish on the FTSE 250 luxury goods group, arguing Watches of Switzerland’s valuation ‘remains undemanding’.
They expect the Cartier, Omega, TAG Heuer and Breitling watches purveyor to report continuing positive growth progress in the US when it updates the market on second quarter trading (7 November), with an accompanying investor event to ‘underscore the significant growth opportunities that await the business’.
WHY ROLEX’S BUCHERER BUY SPOOKED INVESTORS
For Watches of Switzerland, the worry is the tie-up will significantly reshape the investment landscape for high-end timepieces by bringing Bucherer better access to Rolex watches and paving the way for key brand partner Rolex to expand its direct-to-consumer sales efforts.
However, Shore Capital stresses that no changes have been reported in Watches of Switzerland’s partnership with Rolex following the Bucherer deal, which the broker insists ‘does not compromise the company’s underlying prospects’.
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Shore Capital has previously highlighted Watches of Switzerland’s limited geographical overlap with Bucherer and argued the deal does not fundamentally alter the need for consolidation in the fragmented US and European markets.
US TO OUTSHINE UK?
Weakening consumer sentiment and the normalisation of second-hand watch prices are also weighing on the valuation of Watches of Switzerland, although the retailer is expected to report that the level of growth generated in the US in the first quarter continued into the second quarter.
The vast US market is proving more resilient than the UK, where sales are not expected to have declined as steeply as the 8% dip seen in the first quarter, though Dani and Black warn ‘a downward trend could persist, primarily due to subdued consumer sentiment’.
Watches of Switzerland is expected to reaffirm its year to April 2024 revenue guidance, with projections ranging between £1.65 billion and £1.7 billion, implying solid year-on-year growth of 8% to 11% at constant currency.
At the capital markets event, Shore Capital expects Watches of Switzerland to update investors on its Long-Range Plan to full year 2028 and outline the ‘significant opportunities for filling market white space’ across the pond, where scope for acquisitions remain.
‘Similarly, growth prospects in the European market through acquisitions are still ripe’, insists the broker.
LEARN ABOUT WATCHES OF SWITZERLAND
