Nick Hayek, CEO of the Swatch Group, on the Swatch ETA factory in Grenchen, Switzerland, in 2023.
Bloomberg | Bloomberg |
Swisswatchthe world’s largest watchmaker, reported on Monday a pointy decline in first-half sales and profits as demand for luxury goods in China remained weak, but forecast that business would improve significantly in the rest of 2024.
The Swiss maker of Tissot, Longines and Omega watches, in addition to Swatch’s plastic watches of the identical name, said net sales fell 14.3 percent to three.45 billion Swiss francs ($3.85 billion) within the January-June period at current exchange rates.
The company’s shares plunged greater than 11.5% and were heading in the right direction for his or her worst day in greater than 4 years.
Sales were significantly below the consensus forecast of CHF 3.75 billion obtained by Visible Alpha. The company also pointed to negative currency effects of CHF 145 million.
Operating profit fell from 686 million francs within the previous yr to 204 million francs, the operating margin decreased from 17.1 percent to five.9 percent. Net profit fell from 498 million francs to 147 million francs.
“An ugly six months in every respect for the Swatch Group,” said Vontobel analyst Jean-Philippe Bertschy.
The group attributed the drop in sales to a collapse in demand for luxury goods in China. Only the Swatch brand was capable of buck this trend and increase its sales within the country by 10 percent.
China is anticipated to stay a challenge for your complete luxury goods industry until the top of 2024, Swatch said, but added that there are currently “excellent opportunities” for the group’s lower-price brands.
The company expects strong growth in Japan and the United States within the second half of 2024 and said prospects in lots of European countries are promising.
“The group assumes that the situation will improve significantly in the second half of the year,” it said. Then the cost-cutting measures may even have their full effect.
Other firms are also struggling: British luxury group Burberry, for instance, issued a profit warning on Monday and canceled its dividend payout for 2024 as a part of the substitute of its CEO.
China’s worries
Swatch CEO Nick Hayek said earlier this yr that Chinese consumers had grow to be more “price conscious,” and a recent report said the country’s wealthy aren’t any longer flaunting their wealth, preferring more understated fashion as an alternative.
China’s economy grew much slower than expected within the second quarter as a chronic property market slump and job insecurity hampered the delicate recovery.
“The downturn in the real estate sector has had a ripple effect on the rest of the economy, dampening consumer and investor confidence and also leading to higher unemployment,” said Caroline Reyl, senior investment manager at Swiss private bank Pictet, concerning the difficulties facing brands exposed to China.
She said that watch development had lagged behind that of jewelry and that entry-level and mass-market Swiss watches were also facing increasing competition from smart and connected watches.
Sales figures outside China remained on the 2023 level in local currencies, Swatch said.
