Watches of Switzerland says demand is outpacing supply

Watches of Switzerland shares rose sharply on Thursday as the luxury group revealed “record” annual sales and profits.

With shoppers flocking to buy timeless timepieces, sales jumped 19 percent to £1.54 billion, with the company experiencing strong growth in the US and benefiting from higher average selling prices.

The luxury watch retailer said “demand remains strong and continues to outpace supply.”

Despite high inflation in the UK and globally over the past 18 months, the luxury goods sector has held up much better than analysts had expected, with LVMH posting huge profits.

Watches from Switzerland [re-tax statutory profits increased by 23 per cent to £155million, and the group reiterated in guidance for its 2024 financial year. 

Watches of Switzerland shares were up 11.03 per cent or 76.50p to 718.00p this morning, having slipped around 4 per cent in the past year. 

The group said sales of pre-owned luxury watches grew by double digits over the period, with pricing and margins remaining unchanged. 

Sales of luxury watches rose by 28 per cent, and accounted for 87 per cent of total revenue, with performance driven by an rise in average selling prices as well as volume growth.

The Rolex seller reported adjusted EBITDA of £201million for the full year to 30 April, up 24 per cent year-on-year. 

Its free cash flow strengthened 30 per cent to £146million during the period. 

Boss Brian Duffy said the group fared well owing to its longstanding brand partnerships, staff and ‘well-invested’ showrooms, which are bolstered by online channels. 

Duffy said: ‘We start the new financial year with some great projects, with the opening of our Watches of Switzerland showroom at American Dream in New Jersey, upgrading and relocating our Mayors showroom in Dadeland Florida, the first opening of our new Mappin & Webb contemporary showroom design, and five mono-brand boutiques in the UK and Europe including our first showroom in Germany.’

On the up: Rolex seller Watches of Switzerland saw its share price rise over 10% on Thursday

He added: ‘Luxury watch demand remains strong and continues to outpace supply, with our client registration lists extending and average selling prices growing.’ 

Trading in the US contributed more than a third of sales at £653million, while business also rose in airports.

Looking ahead, the FTSE 250-listed group kept guidance unchanged for the current year, with revenue in the region of £1.65billion to £1.7billion forecast.

Danni Hewson, head of financial analysis at AJ Bell, said: ‘Watches of Switzerland has reported the kind of revenue, profit and free cash flow growth that most companies can only dream of. 

‘The fact it has achieved stellar growth in a cost-of-living crisis shows that not everyone is short of money.

‘The market has previously worried that the luxury goods market might not be as resilient as previously thought.

‘Second-hand Rolex prices have weakened, with the decline attributed to people who had previously won big on crypto flooding the market with the watches they had bought to show off their new-found wealth. As crypto prices fell back, many people playing that game reassessed their finances and offloaded some of their assets.

‘There have been cracks elsewhere in the luxury goods sector, such as falling diamond prices. Watches of Switzerland even reported a ‘more challenging trading environment’ in May, which naturally pulled extended earlier share price losses as investors pondered if the luxury goods boom had passed its peak.’

She added: ‘Therefore, today’s announcement that everything is still going swimmingly has caught investors by surprise, hence the share price jump. 

‘More people are getting on the company’s list to buy watches, average selling prices are moving higher, and expansion plans are going well, putting Watches of Switzerland ahead of its long-range plan.

‘Despite the uncertain economic backdrop, the fact Watches of Switzerland hasn’t downgraded its guidance has been taken as a massive positive in the eyes of investors.’