Watches of Switzerland sales jump but shares slump amid margin pressure
But shares fell sharply on Thursday as Watches of Switzerland warned the imposition of US trade tariffs would put further pressure on margins in the year ahead.
The luxury retailer said sales increased by 8 per cent at constant currency rates to £1.65billion in the year ending 27 April.
Revenue only expanded by 4 per cent in the first half, due to its US business bumping up showroom stock levels of prominent brands before climbing by 12 per cent over the following six months.
Luxury jewellery purchases more than doubled from £102million to £211million thanks to the takeover of Italian firm Roberto Coin's US associate company.
By comparison, the group's luxury watch sales and combined revenues across the UK and Europe rose by only 2 per cent to £1.35billion and £866million, respectively.
Watches of Switzerland's trade in Britain continued to be affected by subdued tourist demand stemming from the removal of VAT-free shopping four years ago, which contributed to its online turnover falling by 5 per cent.
Yet the retailer's UK sales still returned to growth as the luxury watch and jewellery market stabilised following considerable pandemic-induced volatility.
Its adjusted earnings before interest and tax also grew by 12 per cent to £150million, surpassing analyst expectations of £148.8million.
However, pre-tax profits slumped by 18 per cent to £76million owing to product mix and greater promotional activity.
Watches of Switzerland's overhead costs also jumped by a quarter, largely due to the Roberto Coin takeover, as well as IT investment, salary hikes, and the opening of a new support centre in Florida.
The London-based company expects its profit margins to decline this year in the wake of US President Donald Trump's 10 per cent baseline tariff on imported goods.
Trump briefly slapped a 31 per cent 'reciprocal' levy on Swiss-made products in April before suspending the tax for 90 days.
Some of Watches of Switzerland's brand partners have responded to the tariffs by hiking prices in the US by a mid-single-digit percentage, thereby eroding margins.
It told investors: 'The outcome of US tariff developments remains uncertain. We are in regular dialogue with our brand partners, but it is too early to comment on the potential sector impact of further changes.
'We will provide a further update as to the potential impact on FY26 guidance once the situation becomes clearer.'
The Swiss Government has until 9 July to agree a trade deal with the US before the higher tariffs come back.
Watches of Switzerland Group shares were 7.1 per cent down at 391.6p on Thursday morning, taking their losses to around 28 per cent since the year started.
Equity research analyst at Shore Capital David Hughes said: 'The business has done an admirable job in driving margin recovery alongside revenue growth in FY25A.
'But in our view further margin recovery is needed before the market offers a more generous rating on the stock.'
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