Watches of Switzerland sees flat revenue and lower profits, but US sales boom

Watches of Switzerland Group has been a perennial over-performer in UK retail (and increasingly abroad), but its seemingly unstoppable growth has faltered this year and in the first half, its figures were nowhere near the spectacular results seen in the past.

The company’s CEO described its performance as “good”. But looking at the numbers in isolation, that may seem a little too optimistic, an early Thursday dip in the share price supporting a more pessimistic view. To be fair though, the backdrop in its sector was extremely tough during the period.

So let’s dive into those figures. Group revenue rose 2% at constant currency but dipped slightly on a reported basis reaching £761 million in the six months to late October after £765 million a year ago.

In the UK and Europe, revenue was down 4% on both a reported and constant currency basis at £433 million, although in the US revenue of £328 million was up 5% reported and 11% constant currency. 

Adjusted EBITDA fell 10% to £94 million with an adjusted EBITDA margin down from 13.6% to 12.3%. Statutory operating profit fell 16% to £78 million and statutory profit before tax was down 20% at £67 million.

It saw continued growth in luxury watches with the reduction in the broader jewellery market “reflecting temporary softer consumer sentiment and a repositioning to full-price sales in the US”.

Group e-commerce sales fell 3% on last year at constant currency “against strong comparatives in the prior year and impacted by the higher proportion of jewellery sales through this channel”.

CEO Brian Duffy said of all this: “Our good first-half performance reflects the group’s growing leadership position in our chosen markets as the strength of our longstanding brand partnerships and our proven business model continue to drive our performance forward.”

He was particularly pleased with performance in the US, which now comprises 43% of group revenue, but said the consumer environment in the UK continues to be more challenging and UK and Europe revenue “was impacted by the timing of product intake in Q1 FY24 and temporary showroom closures for refurbishment”.

He added that the firm has expanded its retail network “at pace” in the first half, opening a total of 19 showrooms globally, while investing in elevating the luxury experience for its clients through major refurbishments across seven showrooms. It also completed the acquisition of selected luxury showrooms from Ernest Jones in November.

Given that the product intake timing issue and showroom revamp closures were a factor in the weaker UK sales, perhaps that description of the half’s performance as “good” isn’t so far off the mark.

Duffy added that “demand dynamics remain strong, and our client registration lists continue to grow, whilst the pre-owned market remains a significant opportunity. We are encouraged by the early performance of the Rolex Certified Pre-Owned programme following its launch in the first half in both the US and UK. We will continue to expand the number of showrooms to meet demand for all pre-owned luxury watches and are excited by the growth potential in this category”.

Looking ahead, he believes the group is “well positioned for a good holiday trading period as we present our clients with our strongest ever range of luxury watches and luxury branded jewellery. We remain on track to deliver full year guidance, with our confidence for H2 underpinned by the reopening of several high revenue showrooms which were closed for upgrade in H1”.

And looking even further ahead, he’s confident in the Long Range Plan objectives of doubling sales and profit by 2028 “through capitalising on our leading market positions and the unique growth opportunities available to us as the world’s largest luxury watch retailer”.