Swatch First Half Earnings Drop for First Time in 5 Years

In What's New, Industry News by Jeff Prine

Nicole Kidman, one of the brand ambassadors for Swatch Group's Omega brand

Nicole Kidman, one of the brand ambassadors for Swatch Group’s Omega brand

Zurich—Reporting its first drop in half year earnings in five years, Swatch Group today warned of an uncertain second as Hong Kong, one of its biggest markets, turned soft.

For the sixth months ended, Swatch posted net profit down 11.5% to 680 million Swiss francs (about $757.24 million), just missing analysts’ forecast for 690 million francs in sales. Operating margin fell to 20.2%, from 22.7 percent a year ago.

Gross sales rose 4% to 4.347 billion francs, again short of a 4.438 billion forecast. When excluding currency swings, they rose 8.5%.

A fire at ETA, Swatch Group’s Swiss production facility, cost about 200 million francs off gross sales and also hit profitability.

CEO Nick Hayek said the status quo had return to normal, however.

“Our reported sales in the second half should be above the first half’s level and I also see upside potential for the margin as the negative currency impact lessens,” he said, adding the comparative basis for currencies was getting easier.

‘In addition, all brands continued to invest heavily in marketing, particularly Omega during the Olympic Winter Games in Sochi,’ it added.

Marketing investment at the Games had a particular impact on its flagship Omega brand.

Overall, at 830 million Swiss francs, operating profit was 8.8 per cent lower than in the previous year owing to exchange rates and Sochi spending.

– See more at: http://www.skynews.com.au/business/business/world/2014/07/23/swatch-group-profit-hit-by-sochi-costs.html#sthash.yKyjZnQq.dpuf

Currency Fluctuations

Hong Kong, which accounts for nearly a fifth of total Swiss watch exports in the first half, worth some 2 billion Swiss francs. Last year, Swatch’s sales to Greater China were 3.2 billion francs, about 38% of total sales.

Hayek said he was concerned about the situation in Hong Kong, where pro-democracy protesters have clashed with police in past weeks.

“There’s a lot of uncertainty because of this…conflict. Fewer people visit Hong Kong and our stores there. But the main problem is with wholesale. Retailers are worried and buy fewer watches. This uncertainty will persist for some time.

‘In addition, all brands continued to invest heavily in marketing, particularly Omega during the Olympic Winter Games in Sochi,’ it added.

Marketing investment at the Games had a particular impact on its flagship Omega brand.

Overall, at 830 million Swiss francs, operating profit was 8.8 per cent lower than in the previous year owing to exchange rates and Sochi spending.

– See more at: http://www.skynews.com.au/business/business/world/2014/07/23/swatch-group-profit-hit-by-sochi-costs.html#sthash.yKyjZnQq.dpuf

Hayek said he was concerned about the situation in Hong Kong, where pro-democracy protesters have clashed with police in past weeks.

“There’s a lot of uncertainty because of this…conflict. Fewer people visit Hong Kong and our stores there. But the main problem is with wholesale. Retailers are worried and buy fewer watches. This uncertainty will persist for some time.”

As a result, Swatch said it hopes margins and sales will recover in the second half of the year as the negative impact from the strong Swiss franc wanes and demand in the United States and Japan remains robust. .

Mainland China also picked up, with Swatch and Harry Winston brands doubling their sales and Omega returning to growth, while high-end Breguet still struggled, Hayek said.

Swiss watch exports overall rose 3% in the first half, data also showed on Tuesday. Exports to Hong Kong in June were down 2.2%

“Our reported sales in the second half should be above the first half’s level and I also see upside potential for the margin as the negative currency impact lessens,” Hayek said, adding the comparative basis for currencies are improving.

Swatch emphasizes market share over margins in its report. Hayek said the company would continue to give market share gains priority over price increases.

Once again Hayek addressed speculation about the impact of smartwatches, particularly predictions that Apple will launch its iWatch soon. Said Hayek: “We already have all the knowhow, we don’t need a partnership!”

 

 

 

Item of the Day: Vincent Peach
Crocs to Cut Jobs, Shutter Stores after Q2 Earnings Fall