ii view: Watches of Switzerland clocks up new records

This luxury watch retailer fell 42% in 2022 and has fallen by around 10% in 2023. Buy, sell, or hold? 

Full-year results to 30 April

• Revenue up 25% to £1.54 billion
• Pre-tax profit up 23% to £155 million
• Net cash of £16 million, improved from net debt of £14 million

Chief executive Brian Duffy said:

"Our record performance is testament to our unique combination of longstanding luxury brand partnerships, dedicated colleagues focused on delivering exceptional client service, and our well-invested network of showrooms, which are supported by leading multi-channel capabilities.”

• Learn more: SIPP Portfolio Ideas | How SIPPs Work | Transfer a SIPP

ii round-up:

Specialist retailer Watches of Switzerland Group (LSE:WOSG) today reported record annual sales and profits as demand for luxury watches continued to outpace supply. 

US sales growth of 52% to £653 million helped push overall sales for the year up 25% to a record £1.54 billion. Pre-tax profit rose by a similar amount to a record £155 million. 

Shares in the FTSE 250 company ticked up by as much as 18% in early UK trading having come into this latest news down by around a fifth year-to-date, as investors continued to worry over a possible interest rate hiked recession. That compares to a 12% gain for watchmaker The Swatch Group AG Bearer Shares (SIX:UHR) in 2023 and a 1% fall for the FTSE 250 index itself. 

Watches of Switzerland sells both watches and jewellery across the UK, US and parts of Europe. UK and Europe sales for the year rose 10% to £890 million, helped by 15 new UK showroom openings and an improved performance for its airport outlets, as passenger numbers recovered from the pandemic. 

Pre-owned luxury watch sales rose by strong double digits across its regions with pricing and profit margins maintained, while luxury jewellery revenues climbed 10%, driven by increases in average selling prices. 

Management says the business entered the new 2024 year significantly ahead of where it expected to be when it detailed its Long Range Plan back in 2021. An update on its growth ambitions up to the full year 2028 will be presented this Autumn.  

ii view:

Tracing its history back to 1924, the retailer today sells from just over 190 stores. It operates from the five brand names of Watches of Switzerland, Mappin & Webb and Goldsmiths in the UK only, and Mayors and Betteridge in the US only. Luxury watches account for almost 87% of overall sales, luxury jewellery a further 8%, and servicing, repairs and insurance the balance. 

For investors, the tough economic backdrop including still rising interest rates cannot be overlooked. 
Costs for businesses generally remain elevated, currency moves can affect sales overseas, while the retailer, unlike rival luxury apparel seller Burberry Group (LSE:BRBY), does not currently pay a dividend.

• The secrets of investing when inflation is high
• Insider: directors think these shares are a bargain
• UK equity market valuations at ‘embarrassing’ levels

On the upside, sales and profits have hit new annual records. New stores are being added including growing its small presence in Europe, while client registration of interest lists potentially offer management some reassurance regarding future demand.  

In all, and while a challenging environment for consumers persists, exposure to hard assets in an inflationary environment, plus an analyst consensus target price of close to £10 per share may mean existing shareholders are happy to sit tight. 

Positives: 

• Growing geographical diversity
• Exposure to hard assets

Negatives:

• Uncertain economic outlook
• No dividend payment

The average rating of stock market analysts:

Buy