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Shares in luxury watch retailer Watches of Switzerland plummeted by over 30 per cent on Thursday after the company became the latest luxury group to warn on profits.
Watches of Switzerland, seller of Rolex, Audemars Piguet and Cartier, said it had “experienced a volatile trading performance in the run-up to and beyond Christmas” amid a slowdown in high-end consumer spending.
Chief executive Brian Duffy said consumers had instead focused festive spending on other areas such as fashion, beauty, hospitality and travel, and added that he was “disappointed with this trend”.
Revenue for its financial year is now expected to be between £1.53bn and £1.55bn, down from previous guidance of £1.65bn to £1.7bn. The company’s operating margin, previously expected to be in line with last year’s 10.7 per cent, is now predicted to be between 8.7 to 8.9 per cent.
The downgrade implies an adjusted earnings before interest and taxes range of £133mn to £138mn, compared with £176mn to £182mn previously, according to analysts at Investec. This is roughly a 25 per cent downgrade to management’s expectations, they said.
The warning from Watches of Switzerland, which was backed by Apollo Global Management when it went public in 2019 with a market capitalisation of £647mn, comes amid a broader slowdown for the luxury sector that boomed during the pandemic.
The group was also buffeted last year after Rolex acquired rival watch retailer Bucherer, raising fears that the Swiss manufacturer could sell more of its watches directly to consumers.
Analysts at Jefferies said that “the extent of the adjustments to the guidance range will be painful to navigate in the near term”.
Watches of Switzerland has been expanding aggressively in the US, which was a rare bright spot for the company in the weeks before and after Christmas. Sales in the US grew at a “double-digit” rate, the group said.
The UK was more challenged, with weak underlying demand and more promotions than expected, the company said.
But Duffy insisted he had confidence in its growth prospects. In November, the retailer outlined plans to more than double its annual sales and adjusted earnings before interest and taxes by fiscal year 2028.
Analysts at Peel Hunt said Thursday’s warning was “a blow to sentiment”, adding that management’s long-term plans “could start to look a real stretch if — as we expect — markets stay weak for the foreseeable future”.
Kate Calvert at Investec said “the market is likely to focus on short-term trading in the near term”.
