Brits splashing out on Rolexes boosts Watches of Switzerland - Financial Times

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With global travel still frozen and high-end leisure spending in the doldrums, rich consumers have turned to luxury watches, boosting the retailer Watches of Switzerland.

Shares in the group jumped 20 per cent on Thursday after it reported that increased demand from well-heeled UK consumers had partly offset a lack of tourists passing through central London and major airports.

Group sales rose 4.8 per cent to £811m in the year to April 26, despite many stores in the UK and US being closed for the final portion of that year. Since shops reopened, the company said trading had beaten management’s expectations in the UK and the US.

“The UK public have always loved their watches,” said Brian Duffy, chief executive. “There has been some accumulation of wealth and savings over the period as people have not been able to spend on other things, and people appreciate these timepieces and what they stand for.”

Group first-quarter sales were still down by more than a quarter because of store closures, but were 7.4 per cent higher in July. Watches of Switzerland forecast full-year revenue of between £840m and £860m, and said underlying profit margins would remain stable.

First-quarter sales to domestic customers, mostly through the Goldsmiths and Mappin & Webb chains, rose to almost 70 per cent of the UK total, from two-fifths a year earlier, while sales at airports and to tourists shrank to under 5 per cent from a third.

The dearth of tourists meant the company “was able to supply more products to the [regional] shops”, said Mr Duffy, though he added that there were still long waiting lists for particularly coveted marques, such as Rolex, Patek Philippe and Audemars Piguet.

Watches of Switzerland has 135 stores across the UK and US selling brands that also include Cartier, Omega, TAG Heuer and Breitling.

In the US, where the group operates in Nevada, Georgia, Florida and New York, sales recovered more quickly than in the UK. “We reopened towards the end of May in Atlanta and Florida and traffic has been better,” said Mr Duffy. “People there are easier about returning to stores.”

July sales in the US were up 27 per cent, against an increase of 1.1 per cent in the UK.

Like many other retailers, Watches of Switzerland reported a large increase in online sales and said that while footfall was generally lower, spending had been higher.

He cautioned that once demand from tourists and airport travellers recovered, the company would be less able to meet demand from regional stores, but added that he did not think deep recessions and rising unemployment in both the UK and US would hurt sales.

“Demand always exceeds supply, so even if there is some fall-off in demand there will still be enough people interested in buying . . . sales reflect our ability to meet that demand, not to create it,” said Mr Duffy.

Pre-tax profit was £1.5m, down from £20.1m last year, though the reduction was mostly down to one-off charges for repaying a loan early.

Analysts at Barclays said the outlook statement was “extremely encouraging” and noted that the new revenue guidance was well above its own full-year estimate of £814m. They are forecasting adjusted pre-tax profit of £54m for the year to April 2021, against £49m for the year just ended.

By mid-afternoon on Thursday, shares in the FTSE 250 group were up 20 per cent to 314p. They floated in May last year at 270p. Private equity group Apollo retains a 42 per cent stake, having acquired the business in 2012.

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August 13, 2020 at 09:47PM
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Brits splashing out on Rolexes boosts Watches of Switzerland - Financial Times

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