Watches of Switzerland hails robust performance but shares slide on missed forecast

Watches of Switzerland has reported another positive result as global demand for expensive timepieces continued its glowing streak, though shares plummeted as the group missed analysts’ forecasts.

Sales for the retailer, which sells brands ranging from Cartier to Breitling and Omega, rose 17 percent – or 12 percent on a constant currency basis – to £407 million for the three months ended January 29.

Luxury watch sales rose 22 percent to £340 million, bringing the company’s total sales in this segment for the first nine months of the fiscal year to £1 billion.

Growth was primarily driven by the company’s US operations, where third-quarter revenues rose by more than a third to £169 million on the back of multiple new showroom openings over the past two years.

The refurbishment and reopening of numerous outlets, including a multi-brand store in Canary Wharf and a Goldsmiths showroom in Brent Cross Shopping Centre, also helped boost trade in the UK and Europe.

However, Watches of Switzerland saw demand in Britain affected by a slow recovery in foreign tourism spending, despite the lack of cross-border travel restrictions.

In addition, orders for the group’s jewelry declined modestly, rising 88.4 percent over the same period last year.

As a result, total sales came in at £18m below consensus expectations of £425m, leading Watches from the shares of the Swiss group to plunge 11 per cent to £8.95 on Thursday.

This made them the biggest faller on the FTSE 250 Index, although they have still more than tripled since the start of the Covid-19 pandemic.

Russ Mold, director of investment at AJ Bell, said: “The company may be surprised by the magnitude of the negative reaction to its otherwise fairly robust third quarter numbers, accompanied by repeated forecasting.

“It suggests some skepticism about its claims to be relatively isolated from weaker consumer demand thanks to a wealthier clientele and continued strong demand for luxury watches.”

Luxury brands, which had been significantly impacted by lockdown restrictions in 2020, saw a strong recovery in sales as governments around the world eased trade rules and made it easier for passport holders to travel abroad.

And while retail spending is now significantly impacted by rising inflation, due in part to the war in Ukraine, wealthy shoppers — especially younger adults — are helping the luxury goods market weather the current economic gloom.

For the current financial year, Watches of Switzerland estimates sales will rise to between £1.5 billion and £1.55 billion, while adjusted profit before interest and tax will range from £163 million to £175 million.

This is according to a report published in November by management consultancy Bain & Company and Altagamma, the Italian luxury goods industry bodypredicted that the global luxury sector would grow every year for the rest of this decade.