Swatch Group Shares Surge on 1H Results, 2H Outlook

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Swatch Group Shares Surge on 1H Results, 2H Outlook
by Kyle Stults on August 14, 2009

First In Watches Comments on Swatch Group 1H’09 Results

1H’09 Results Buck Broader Swiss Watch Export Trends
Swatch Group gaining share in a challenging market
Retailer de-stocking is subsiding; orders normalizing
High end price segment remains a concern (>3,000 CHF) remain a concern; lower price brands appear to be recovering first for both the industry and Swatch
FIW believes Swatch in a good position to acquire

Biel, Switzerland based Swatch Group reported results for the first half of 2009 today, and despite a 15% drop in first-half sales and a 28% drop in net profit, Swatch expressed optimism despite the sales drop, expecting sales to reboud somewhat in the second half, stating:

The first half of 2009 was marked by a very challenging economic environment with a drop in demand and a declining consumer confidence worldwide. The Swatch Group was much more resistent to this negative development than most of the industry, with gross sales decreasing on a comparable basis (excluding the two divestments made in 2008) by only 15.3% to CHF 2 480 million. This result is by far better than the export figures for the first half-year 2009 published by the Swiss Watch Federation. The Swatch Group is benefitting from its worldwide presence and the excellent positioning of its 19 internationally known brands in all price categories. This success factor has enabled the Group once more to increase market shares in all watch segments and regions.

These results compare favorably to the 1H Swiss watch export data from the Swiss Watch Federation, which was not encouraging (total exports down 32%):

swejune

First In Watches has some concern that the high end still seems to be weak for Swatch and the industry as a whole. The true luxury consumer is still hurting, it seems clear. The recovery is being lead by the mid/lower-price points brands – Tissot, Longines, etc.

The very high-end brands such as Blancpain, Breguet and Glashuette are having a more difficult time — not with respect to customers, they are buying — but because retailers are scared about ordering watches costing $200,000, $300,000, $400,000,” Swatch CEO Nick Hayek stated.

This is consistent with FHS data, where we see relative outperformance at the lower end (notice the up-tick for the 2 lower price point ranges):

swejune2

All in all, First In Watches analysis of Swatch Group 1H’09 results are encouraging for Swatch, with some success coming at the expense of other brands/competitors in the industry. The broader industry however, high end in particular, continues to struggle in this very challenging economy, and FIW remains cautiously optimistic on the industry as a whole as Swatch Group appears to be leading a possible recovery.