ZURICH: Swatch Group, the world's biggest watchmaker, reported a steep drop in first half sales and earnings on Monday as demand for luxury goods in China remained weak, but forecast business would improve significantly later in 2024.
The Swiss maker of Tissot, Longines and Omega watches, as well as the eponymous plastic Swatch watches, said net sales at current exchange rates dropped 14.3% to 3.45 billion Swiss francs ($3.85 billion) in the January-June period.
The company's shares plunged more than 11.5%, on track for their worst day in more than four years.
Sales were well below the 3.75 billion franc consensus forecast gathered by Visible Alpha, with the company also pointing to a negative currency impact of 145 million francs.
Operating profit fell to 204 million francs from 686 million a year earlier, with the operating margin contracting to 5.9% from 17.1%. Net profit tumbled to 147 million francs from 498 million.
"An ugly half year for Swatch Group in all respects," said Vontobel analyst Jean-Philippe Bertschy.
The group attributed the lower turnover to a slump in demand for luxury goods in China, with only the Swatch brand bucking the trend with a 10% rise in sales in the country.
China would likely remain challenging for the entire luxury goods industry until the end of 2024, Swatch said, but added that there are currently "excellent opportunities" for the Group's brands in the lower price segment.
The company expects strong growth in Japan and the United States in the second half of 2024, and said prospects in many European countries are promising.
"The Group expects the situation to improve strongly in the second half of the year," it added, when the full impact of cost-cutting measures would also be felt.
Other firms have also been struggling, with British luxury group Burberry on Monday issuing a profit warning and scrapping its dividend payment for 2024 as it replaced its CEO.
CHINA WOES
Swatch CEO Nick Hayek said earlier this year that Chinese consumers had become "more price sensitive", while a recent report said the country's rich are avoiding flaunting their wealth in favour of more low-key fashion.
China's economy grew much more slowly than expected in the second quarter, as a protracted property slump and job insecurity hampered a fragile recovery.
"The downturn in the property sector has had a ripple effect on the rest of the economy, dampening consumer and investor confidence and also leading to higher unemployment," Caroline Reyl, senior investment manager at Swiss private bank Pictet, said of the difficulties faced by brands exposed to China.
She said watches had lagged wider jewellery performance, with entry level and mass market Swiss watches also seeing increased competition from smart and connected watches.
Sales figures outside of China in local currencies held at the level of 2023, Swatch said. - Reuters
