Sunday 23 October 2016

Swatch warns of first-half profit slide as sales drop

Published 15/07/2016 | 08:33

Swatch Group Chief Executive Nick Hayek Jr
Swatch Group Chief Executive Nick Hayek Jr

Swatch on Friday said its first-half profit would slide 50-60pc on dwindling sales in Hong Kong and Europe, and analysts warned that the deadly Bastille Day attack in Nice would hurt tourist sales for the foreseeable future.

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Swiss watchmakers are grappling with weak demand as fewer Chinese tourists shop for timepieces in Hong Kong and Europe and a strong Swiss franc pushes up the production cost for "Swiss made" watches.

The world's biggest watchmaker said in a statement it expected sales to fall about 12pc in the first half due to "important markets like Hong Kong and partially Europe, especially France and Switzerland, while mainland China develops positively".

Shares in the group were indicated to open 9pc lower, on top of a 17pc fall this year and a 21pc drop last year. JBPRE01

The group said it would keep its staff and also maintain investments in new products and marketing, and pursue a defensive price increase policy even though this meant an important hit to its margins.

"The operating profit and the net income are expected to be lower by some 50-60pc," the maker of Omega, Longines and Swatch watches said, adding it would publish full first-half results on July 21.

Swatch Group is facing even more headwinds than rivals because, unlike Richemont, it has little exposure to the flourishing jewelry category and its entry-price brands face fierce competition from smartwatches like the Apple watch.

"Nice is going to further hurt the sector. Tourists just won’t want to come to Europe and particularly France during the summer," Kepler Cheuvreux analyst Jon Cox said, adding results were clearly much worse than expected on the top and bottom line.

"The company was expecting a rebound this year and has kept production and staff at levels consummate with that – the recovery hasn't happened and if anything things have got worse," Cox said.

Reuters reported last month that Swatch was backpaddling on the phasing-out of watch movement deliveries, in a sign demand for watches is likely to stay subdued in the foreseeable future.

Swiss watch exports, of which Swatch's products make up an important part, fell 9.5pc in the first five months of the year, dragged down by their two biggest markets, Hong Kong and the United States.

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