January 31, 2019 / 6:21 AM / 3 months ago

Asian slowdown spoils the picture for Swatch Group

ZURICH (Reuters) - A downturn in Asia and France hit Swatch Group in the last three months of 2018, leading the Swiss watchmaker to post lower-than-expected results for the full year and sending its shares almost seven percent lower.

FILE PHOTO: Watches are displayed in a window of a store of Swiss manufacturer Swatch in Zurich, Switzerland January 29, 2019. REUTERS/Arnd Wiegmann/File Photo

Sales of Swiss luxury watches are under pressure as trade-war tensions and a slowing Chinese economy and weak yuan have curbed the appetite of their biggest group of customers for spending on big-ticket items, especially during trips abroad.

“(In Asia) a downturn in demand occurred in the last three months of the year, particularly in wholesale,” the maker of Swatch watches, sporty Tissot and luxury Breguet timepieces said in a statement on Thursday.

It also pointed to a “very weak” performance in France, where luxury boutiques saw sales dwindle before Christmas due to “yellow vest” protests.

Swatch Group’s comments contrasted with an upbeat report on Tuesday from luxury goods giant LVMH, whose like-for-like sales rose 9 percent in the fourth quarter thanks to strong demand for leather and fashion goods.

RBC Capital Markets analyst Rogerio Fujimori said Swatch’s negative performance in the Christmas quarter contrasted with 7 percent organic growth at LVMH’s watch and jewelry business and 5 percent at Swiss peer Richemont.

He attributed the divergence to a high comparison base at Swatch and a “material underperformance” in the low to mid-price segment that was reflected in Swiss watch export statistics.

Swatch shares, which lost almost 28 percent of their value last year, fell 6.8 percent by 1030 GMT, also dragging down Richemont.

Swatch, which is behind Omega watches regularly worn by James Bond, said it had seen solid growth in January — which analysts attribute to the Chinese New Year — and was anticipating healthy growth this year.

“The leadership position (...) in China will become a major opportunity for the group in 2019, even if ongoing market turbulence remains disruptive,” Swatch said.

It pointed to jewelry brand Harry Winston, high-end Blancpain and mid-range Longines as growth drivers. Production bottlenecks had led to delays and inventory buildup at Longines and Omega, a problem it expected to resolve soon.

It didn’t mention its other high-end brands Breguet and Jaquet Droz or demand for its Swatch and Tissot watches that are facing competition from smartwatches. It delayed the launch of a Tissot with its own operating system to later in 2019.

Sales rose 5.7 percent at constant currency rates to 8.48 billion Swiss francs ($8.54 billion), below a forecast for 8.65 billion francs in a Reuters poll.

Net profit rose 14.8 percent to 867 million francs, short of a 952 million forecast. A dividend proposal of 8 francs per bearer share was also below expectations.

($1 = 0.9928 Swiss francs)

Editing by Keith Weir

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