Swatch Group AG, whose brands include Omega, Blancpain, and jeweler Harry Winston, reported operating profits plunged by 75% to 304 million Swiss francs in the full year of 2024, missing the Bloomberg Consensus estimate of 557.5 million Swiss francs.
The Swiss watchmaker reported net sales last year that tumbled 12% to 6.735 billion Swiss francs, while net profit dropped to 219 million Swiss francs from 890 million Swiss francs a year earlier.
Here’s a snapshot of the 2024 earnings results (courtesy of Bloomberg):
Operating profit CHF304 million, -74% y/y, estimate CHF557.5 million (Bloomberg Consensus)
- Watches & Jewelry operating profit CHF410 million, estimate CHF635.1 million
- Electronic Systems operating profit CHF12 million, estimate CHF14.9 million
Operating margin 4.5% vs. 15.1% y/y, estimate 8.19%
- Watches & Jewelry operating margin 6.4%, estimate 9.44%
- Electronic Systems operating margin 3.6%, estimate 4.07%
Net sales CHF6.74 billion, estimate CHF6.99 billion
- Watches & Jewelry net sales CHF6.42 billion, estimate CHF6.73 billion
- Electronic Systems net sales CHF330 million, estimate CHF326 million
Sales at constant exchange rates -12.2%, estimate -9.57%
Net income CHF219 million, estimate CHF383.3 million
“Record sales and market share gains in the USA, Japan, India and the Middle East, with the strongest growth for the Omega, Longines and Tissot brands,” the watchmaker said.
However, the downturn in luxury continued in China. It noted, “Persistently difficult market situation and weak demand for consumer goods overall in China (including Hong Kong SAR and Macau SAR).”
Swatch’s 2025 outlook indicates that watch demand in China—which accounts for 30% of its sales—will likely remain “rather restrained“:
2025 promises positive momentum worldwide. The Group’s extensive industrial basis, as well as its strong brand presence, with many exciting new products across all price segments, mean that a positive performance in 2025 can be expected. Demand in China will continue to be rather restrained. The expectation is that the habits and behaviour of Chinese consumers will continue to change, which will open up plenty of new opportunities for the strongly positioned brands. For 2025, Swatch Group expects substantial improvements with respect to sales, operating result and cash flow.
Commenting on the earnings report, Goldman’s Louise Singlehurst, Ben Rada Martin, and others told clients that their initial take is: “A difficult backdrop drives lower operating margin progression. Expect a return to growth in 2025.”
Singlehurst comments on Swatch’s FY’25 Outlook:
Into December Swatch Group saw double digit growth in December across Omega and Tissot brands, with prestige segment brands below those of last year – with the key strength in exit geographies as US/Canada/UK/Netherlands/Belgium growing +20% YoY. Looking forward, Swatch sees positive worldwide momentum in 2025 (while expecting China demand to be rather restrained). Given this backdrop Swatch expects to drive a positive performance across sales / operating result / cash flow.
And the analysts’ view:
We believe the FY24 Operating miss (-3% Sales, -39% EBIT) shows the difficulty of Swatch’s category and geographic exposure (Now 27% Greater China exposure which declined -30% YoY). We do believe stronger December exit momentum and 2025 outlook is a partial offset, however believe focus will remain on aligning supply with demand and the return to long run levels of profitability.
Swatch is “Neutral” rated by GS with a 12-month price target of 165 Swiss francs.
Here’s what other analysts on Wall Street are saying (courtesy of Bloomberg):
Stifel (hold)
Swatch saw a weaker-than-expected performance in the second half of 2024 due to weakness in Greater China, says analyst Rogerio Fujimori, adding that the pressure on profitability is significant
While the company expects a positive sales development in local currency, this should be capped by expectations for demand in China to remain restrained in 2025
RBC Capital Markets (underperform)
Swatch’s earnings are “materially weaker than expected,” says analyst Piral Dadhania, adding that they will be received poorly by the market given some luxury peers have posted significant beats
Sees “fairly material” downgrades to 2025 consensus earnings given the magnitude of the miss
Kepler Cheuvreux (reduce)
Jon Cox notes sales watch unit operating margin improved in 4Q, December, but it still sees China constrained in 2025
Results were worse than expected
Vontobel (hold)
Jean-Philippe Bertschy says this is a year to forget with 14% sales decrease in watches and jewelry in 2H
Notes this is the second consecutive year with negative free cash outflow leading to CHF0.9 bln net cash reduction in two years
FY24 results were well below expectations, leading to a dividend cut of more than 30%
Adds that investors’ mistrust of the Swatch Group remains high and that some of them are likely to sell out
Jefferies (underperform)
Frederick Wild says the scale of the 2H results miss will come as a shock today
Notes comments on ‘restrained’ demand in China
Swatch shares in Europe are down about 5% on the session, hovering around Covid lows. Bloomberg data shows shares are one of the most shorted in Europe, down about 55% since their peak in early 2023.
Mixed earnings from LVMH Moët Hennessy Louis Vuitton SE suggest the luxury recovery will be gradual and far from rapid.
“LVMH has not yet experienced a major inflection point in demand in any of its key geographies, as seen by most peers who have already reported,” Citi analyst Thomas Chauvet told clients on Wednesday.
JPMorgan strategists led by Mislav Matejk said, “A year ago, the brief bright spell was fueled by the expectations of manufacturing recovery and the China stimulus, views not too dissimilar to the current situation, but it failed to last.”
Meanwhile, the Bloomberg Subdial Watch Index, which tracks prices for the 50 most-traded watches by value on the secondary market, has slowed its multi-year descent in recent months.
The big takeaway is that continued weak demand from Chinese consumers will weigh on any luxury recovery in 2025.
Tyler Durden
Thu, 01/30/2025 – 09:05
