PARIS — China’s consumption slowdown has bitten the Swatch Group hard, as the Swiss watchmaker posted a 70.5 percent drop in first-half net income to 147 million Swiss francs, or $164 million at current exchange rates.
Revenue for the first six months of 2024 reached 3.45 billion Swiss francs, or $3,86 billion, down 10.7 percent at constant exchange rates. It came in short of consensus expectations of 3.72 billion Swiss francs, or $4.16 billion.
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Foreign exchange variations left a dent of 145 million Swiss francs in the semester, the company noted. Its EBIT, or earnings before interest and taxes, totaled 225 million Swiss francs, less than half of what it was in 2023 for the same period.
Piral Dadhania, analyst at RBC, deemed these first-half results “worse than feared on weak China trends” and expected markets to react negatively.
By mid-morning trading, Swatch shares were down 11 percent hit to 168.35 Swiss francs, or $188.3 at current exchange rates.
Bernstein senior analyst Luca Solca wondered if these first-half results could trigger a move to delist the Swiss group, or a fight for takeover from other major groups.
Swatch Group said that its decline in sales for the first half of 2024 was triggered by a sharp drop in demand for luxury goods in Greater China, which includes the Hong Kong and Macau special administrative regions, as well as Southeast Asia, due to the drop in Chinese tourists.
Overall, first-half sales were “above those of the previous year in local currencies, except for China,” it stated, pointing out they were 5.6 percent above 2022’s levels for the same period.
Only the Swatch brand came through relatively unscathed, growing 10 percent in sales against the first half of 2023.
The group also highlighted the sharp drop in operating margin, which stood at 11 percent against last year’s 19 percent, saying that it came from the “deliberate maintaining of marketing investments.”
Elsewhere, the picture was better. While geopolitical unrest made European retailers wary of excess stock, which resulted in a 10 percent decrease in wholesale revenues, sales in the group’s own retail network were stable against last year.
Swatch Group fared well in the U.S., where it remained flat with “the same record sales” as in 2023, and Japan where sales leapt 30 percent to hit a record. South Korea, India and the United Arab Emirates also outperformed 2023’s sales results for the same period, it said.
The company said its watches and jewelry division reported retail revenues of 3.3 billion Swiss francs.
Breguet, Blancpain and Omega were the most affected by the luxury slowdown. Harry Winston performed well, while Swatch, Tissot and Longines maintained their “strong position.”
The group also mentioned the continuing success of Swatch’s collaboration with sister brands Omega and Blancpain.
Its Production division also saw a sharp drop in orders, both from third parties and Swatch Group brands, but the company said it was not making redundancies to preserve its production capacity in a bid to “recover more quickly and benefit more significantly” from an upswing.
Despite a 14.8 percent slump for its Electronics Systems division in the first six months, order books in June were already up 35 percent, “which suggests a rapid recovery can be expected” in the second half for this division.
Overall, for the second half of the year, the Swiss group said it expected “the situation to improve strongly.”
While the Greater Chinese market is set to remain challenging for luxury, Swatch Group felt the region’s potential “remains intact,” with “excellent opportunities for further grown and market share gains” for its lower priced brands.
It deemed prospects in European countries “promising” and predicted Omega would benefit from global media exposure as the official timekeeper of the 2024 Paris Olympics.
A cost-cutting program introduced in early 2024 was also expected to have a positive impact, particularly in the production segment.
Meanwhile, the Swiss watch and jewelry group is in the throes of a generational changing of the guard. The company announced in June the retirement of chief controlling officer Peter Steiger, a 35-year veteran of the group; the arrival of Damiano Casafina, CEO of Swatch Group-owned movements company ETA; and Tissot CEO Sylvain Dolla in its executive group management board.
In May, it saw the election to the board of directors of Marc Hayek, the CEO of Breguet and Blancpain who is regarded as a candidate to succeed Nick Hayek Jr. at the head of the group.
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