July 18, 2018 / 4:54 AM / a month ago

Swatch Group expects sales growth this year as Asia recovers

ZURICH (Reuters) - Omega watch maker Swatch Group (UHR.S) said it expected strong demand in Asia and America to keep driving sales growth this year after first-half net profit bounced back from weak year-ago levels.

FILE PHOTO: Watches of Swiss watchmaker Swatch are displayed for sale in a watchmaker's store in Vienna, Austria January 26, 2018. REUTERS/Leonhard Foeger/File Photo

Swiss watchmakers have seen sales and margins recover this year after a prolonged downturn caused by a meltdown in Chinese demand.

Swatch Group, which took fewer cost-cutting measures to protect margins than peer Richemont (CFR.S), was hit harder during the lean years, and is now in for a stronger recovery.

“The month of July continues the very positive trend. The second half of the year offers excellent opportunities for continued strong growth and further expansion of market share,” the world’s biggest watchmaker, said in a statement on Wednesday, without giving more details.

It said sales rose 12.6 percent at constant currency to 4.266 billion Swiss francs (£3.25 billion), driven by “very high growth rates” in Asia and a “double-digit sales increase” in North America, while growth in Europe was more variable.

But analysts pointed to more challenging comparables in the second half and said they expected growth to decelerate then.

Shares in Swatch, which have risen over 19 percent so far this year, were 1.1 percent higher at 0758 GMT, slightly ahead of the European sector index .SXQP.

The company-based in Biel in western Switzerland whose portfolio spans expensive Breguet, more affordable Longines and plastic Swatch timepieces-said it had seen strong demand from younger “millennial” consumers across regions and price segments.

Stirring the next generation’s interest in mechanical watches that work without a battery is key for the future of the Swiss watch industry as omnipresent mobile phones tell the time more accurately than any mechanical watch.

“Consumers want real values, not only materially but also emotionally,” said Swatch Group, as its flamboyant Chief Executive Nick Hayek seeks to explain why Swiss watches would keep their appeal in a world “where everything is interchangeable and quickly loses its value”.

The company also highlighted the increasing interest in pre-owned products, a recent trend in the industry, but did not say whether it would actively enter the category as some peers have done.

Rival Richemont in May reported disappointing annual results, notably due to inventory buybacks of unsold watches, but also mentioned the recovery in Hong Kong, the biggest export market for Swiss watches.

Swatch said inventory levels increased to 6.7 billion francs in the first half, leading some analysts to criticise the ongoing deterioration of working capital as a share of sales.

Net profit jumped by 67 percent to 468 million Swiss francs and the operating margin also improved to 14.7 percent.

Reporting by Silke Koltrowitz; Editing by John Miller, Vyas Mohan and Emelia Sithole-Matarise

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