18th Jan 2024 10:44
(Alliance News) - Shares in Watches of Switzerland Group PLC dropped by more than a quarter on Thursday, after the retailer took a hit from weaker luxury markets.
The Leicester, England-based watch retailer, whose key brands include Rolex, Cartier and Patek Phillipe, said it had experienced a "volatile" trading performance during the festive season.
The stock plunged 30% to 409.00 pence each in London on Thursday morning, on the back of the update. Over the last 12 months, the stock has plummeted 58%.
Watches pointed to the impact of "challenging economic conditions" on consumer spending and warned that these circumstances would continue for the remainder of its financial year, which goes to the end of April.
While demand for key watch brands continues to be strong in the US, with double-digit sales growth, the UK market proved to be more challenging, impacting a "broad range" of the company's luxury watch brands and non-branded jewellery. Watches said that this necessitated "an unusually high level of promotional activity in non-branded jewellery".
As far back as October, Watches of Switzerland had noted a "challenging" market backdrop in the UK and Europe.
"Few people sat round an open fire and exchanged Christmas gifts that included a fancy watch, judging by one of the leading timepiece sellers. Watches of Switzerland continues to suffer from the downturn in the luxury goods market and a nice Rolex or fancy Omega were not in Santa's sleigh a month ago," commented AJ Bell investment director Russ Mould.
"Retail trends indicate consumers have prioritised experiences such as foreign holidays over big-ticket items in recent months and that has meant fewer people have given Watches of Switzerland the time of day. This has extended problems for the company which emerged last year where sales growth slowed and the watch market was flooded with second-hand timepieces, weighing on prices."
As a result of weakening demand, Watches has adopted a more "cautious outlook" for financial 2024 and revised its guidance for the full year.
Watches of Switzerland now forecasts between GBP1.53 billion and GBP1.55 billion in revenue for the year, down from previous guidance of GBP1.65 billion to GBP1.70 billion and stable with GBP1.54 billion in financial 2023.
Constant currency revenue growth of is expected at between 2% and 3%, down from previous guidance of 8% to 11%, while its estimate of margin on earnings before interest and tax has been downgraded to between 8.7% and 8.9% from 10.7%, which would have been stable on financial 2023.
Watches of Switzerland is not the only luxury brand suffering from this downward trend, however.
It was only last week that luxury fashion house Burberry Group PLC warned it anticipates its annual results to be below previous expectations following a weaker festive period. The London-based brand also blamed the slowdown in demand within the luxury sector.
This trend of a declining luxury market has not always been the case, though, as pointed out by Steve Clayton, head of equity funds at Hargreaves Lansdown.
Clayton said: "The luxury watch market has enjoyed extraordinary growth in recent years, with watch prices pushing ever higher, despite supply being limited purely by the manufacturers' own decisions. Is the sound of a bubble bursting? Time will tell."
Watches will provide a trading update for the 13- and 29-week periods ending January 28 on February 8.
By Sophie Rose, Alliance News senior reporter
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