Watch out for Swatch Watches
Written by James Matthews
Swatch reported an almost 40 percent rise in first-half net profit amid booming sales of luxury watches and warned that strong demand in the second half could outstrip production.
Shares in the world’s biggest watchmaker rose on Tuesday after it beat expectations with net profit of 460 million Swiss francs ($385.3 million) for the first six months.
“Overall consensus now looks clearly too low for the year, and we anticipate a slew of upgrades on the stock during the session,” said Kepler Equities analyst Jon Cox, who has a “buy” rating on the stock and a target price of 420 francs.
Swatch registered shares were up 2.9 percent at 350 francs by 0812 GMT, compared with a 0.7 percent decline in the Swiss benchmark index.
The company has benefited rising demand for its high-end watches as part of a worldwide boom for luxury goods, including new consumers from China.
Gross sales rose 16.4 percent when adjusted for exchange rate fluctuations to 2.739 billion francs. In actual currencies, sales were up 16.7 percent, boosted by the strength of the euro.
Swatch Group said expectations for the second half of the year were high, although a lack of skilled labour and production capacity could cause bottlenecks.
“In view of the sustained positive mood among consumers worldwide, there is every indication that the current boom will continue,” the company said.
However, it added: “Capacity bottlenecks in many of the group’s production companies will pose major challenges to management in the second half-year.”
LUXURY DRIVERS
Sales in Swatch Group’s core watch and jewellery business rose 20 percent, driving an overall increase in turnover.
Swatch Group, which sells watches and jewellery under 18 marques, said luxury brands such as Breguet, Blancpain and Omega showed particularly strong growth, while its core Swatch brand also reported a double-digit percentage sales increase.
The firm’s production segment, which makes mechanical movements for other watchmakers, reported a sharp increase in its operating profit margin to 14.8 percent from 9.8 percent, due to a change in its product mix.
However, its Electronic Systems segment was hit by increasing price pressure on mobile phone components.
Swatch ramped up spending on marketing across the world in the first half, it said. In particular, it increased its presence in China, Russia and the United States.
At home, Swatch said it was planning to tackle production bottlenecks and was setting up watchmaking schools in order to plug the gap in its workforce.
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This post was written by James Matthews. If you have any questions or comments you may contact him at james@jewelerslounge.com
