3rd Sep 2024 10:58
(Alliance News) - Watches of Switzerland Group PLC's trading statement should "reassure", after a "torrid" year, although further challenges loom on the horizon, an analyst said on Tuesday.
In a trading update, the Leicester, England-based watch retailer said it was seeing continued stabilisation of the UK market in both luxury watches and jewellery after challenging macroeconomic conditions in the prior year.
"Demand for our key luxury brands, particularly products on Registration of Interest lists, remains strong in both the UK and US markets, outstripping supply," the company stated.
In response, shares in the firm, which is the UK's biggest seller of Rolex and Omega watches, jumped 5.7% to 397.99 pence each in London on Tuesday morning.
Overall, trading for the first 18 weeks of the financial year has been in line with expectations, the company said, leaving it on track to deliver its financial 2025 guidance.
Clive Black, retail analyst at Shore Capital, noted that Watches of Switzerland has had a torrid past twelve months, with big earnings misses at the turn of the year set against especially weak UK luxury demand.
Hence, he felt a trading statement that speaks of financial 2025 going to plan "should in the big scheme of things reassure".
Watches of Switzerland said its intends to increase showroom stock levels in the first half of financial 2025 in the US with growth in the region expected to be second-half weighted.
The company said the integration of Roberto Coin Inc is progressing to plan following the acquisition in May.
Watches of Switzerland said it has made good progress on its Manchester luxury jewellery boutique, which is planned to open in April 2025.
Shore's Black views Watches of Switzerland as a well-operated firm with a strong balance sheet and immense retailing capability.
"In the big scheme of things, this is a firm that we believe can gain share in both of its core markets," he said.
However, he thinks the investment community probably wants to "wait and see" how its foray in jewellery with Coin goes before judging too conclusively.
Black believes macro factors will "clearly condition sentiment too but it will be delivery of earnings estimates on an ongoing basis that will ultimately determine where the equity rating of [Watches of Switzerland] rests".
"The risk-reward balance suggest scope for considerable upside, maybe more so after the UK budget," he suggested.
Referencing the upcoming budget from the new Labour government, Black noted concerns of tax rises for those with the "broadest shoulders", meaning the wealthy.
He said this could see the momentum for discretionary consumer goods, and luxury in particular in the UK, further impeded.
"In this respect, once the market has digested this in-line update, there could be a period of wait and see how the budget impacts sentiment and market conditions thereafter," Black observed.
By Jeremy Cutler, Alliance News reporter
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