Swatch 2023 Profits Disappoint Financial Markets
LONDON – Profits at Swatch Group fell short of consensus expectations in fiscal 2023, victim of the strong Swiss franc and a slowdown in consumer demand, especially in the second half of the year.
At current exchange, revenues rose 5.2 percent to 7.89 billion Swiss francs in the 12 month period. At constant exchange they were up 12.6 percent, with a negative currency impact of 7.4 percent.
EBIT, or earnings before interest and taxes, rose 2.8 percent to 1.19 billion Swiss francs, while net earnings climbed 8.1 percent to 890 million Swiss francs.
On the back of the growth, the board will propose an 8.3 percent uptick in the annual dividend to 1.30 Swiss francs per registered share, and to 6.50 Swiss francs per bearer share at the annual general meeting later this year.
Swatch only reports headline figures for the first half, and the full year. It does not break out numbers for the second half.
Full-year revenue was broadly in line with market expectations, although EBIT fell 10 to 11 percent below analysts’ targets for the full year.
“Swatch Group seems to be a victim of two factors: consumer demand moderation, which is hitting tier-two brands the most, and the continuing strength of the Swiss franc,” said Bernstein’s Luca Solca, who pointed out that organic revenue growth in the first half was 18 percent compared with 6.4 percent in the last six months of the year.
Barclays, meanwhile, calculated that second-half sales were down 4 percent versus consensus, and that Swatch Group’s core watches and jewelry division sales missed consensus by 2 percent.
In the second half, “the big miss came from the EBIT line, which was 23 percent below expectations,” said Barclays’ Carole Madjo.
She added the group faced “significant” foreign exchange headwinds, “and we expect this to be the one of the main drivers behind the sharp decline in profit.”
RBC Capital Markets said the watch and jewelry division had revenues of 7.6 billion Swiss francs for the full year, 1 percent below analysts’ expectations. The bank also believes that market share gains were in the “lower price segment, largely driven by Swatch brand.”
In a statement, the company said its growth prospects for 2024 were “excellent, especially also in the lower and medium price segments, despite the problematic strength of the Swiss franc.”
It added that “the rapid erosion of major currencies against the Swiss franc could not be offset by continuous price adjustments.”
The company also noted the Swatch brand “started the year very strongly” with the worldwide launch on Jan. 11 of the Scuba Fifty Fathoms “Ocean of Storms” model.
In fiscal 2023, the company said its watches and jewelry division, including production, maintained a 17.2 percent operating margin, while the segment’s export figures were 11.9 percent at the end of November.
It touted that 11.9 percent uptick as “well above” the overall 7.9 percent growth figure published by the Federation of the Swiss Watch Industry.
“This confirms the market share gains of the group brands in all regions, and especially in the lower price segment thanks to Swatch,” the group said.
In Asia, double-digit growth came from Hong Kong, Macao, Thailand, India, Japan, and China, while Europe posted single-digit sales growth. Switzerland saw growth of more than 30 percent. North America also delivered robust gains, with Omega, Tissot and Swatch “breaking records.”
The company said demand for the MoonSwatch models from Omega and Swatch remained “very high all year, with sales figures reaching new heights all over the world.”
It said the new collaboration between Blancpain and Swatch launched in September with the Scuba Fifty Fathoms collection, was also a global hit.
The group said its Blancpain brand subsequently recorded “a strong increase of traffic in its own stores, and is currently unable to meet the massive demand for original Fifty Fathoms models.”
During 2023, the Swatch brand posted record growth of more than 60 percent, followed by Longines, Tissot, and Harry Winston, which all had growth in the “high double digits.”
During the year, the group invested around 360 million Swiss francs in its own retail, in keeping with a strategy it has pursued for decades.
Of that, more than 220 million Swiss francs was earmarked for the acquisition of multiple properties in prime locations for the group’s own retail network.
As reported, last year the group purchased the Harry Winston building at 171 New Bond Street in London in a deal worth 90 million Swiss francs.
Looking ahead, the group said Harry Winston will surpass one billion francs in turnover in 2024. Swatch and Tissot, as well as Longines, will continue to develop “strongly” in the lower and medium price segments.
The group added that Omega will benefit from a global media presence as the official timekeeper of the Olympic Games in Paris, while America and Japan will continue to offer “great growth prospects” for the group’s brands.
In China, the Swatch Group will see “additional demand” particularly with brands in the lower and medium price segments.
Swatch also warned that exchange rate movements will “continue to impact the group’s results” due to its strong industrial base in Switzerland.
Shares in Swatch Group were down 2 percent to 208 Swiss francs in early afternoon trading.
Swatch 2023 Profits Disappoint Financial Markets