Watches of Switzerland (WOSG), the United Kingdom’s largest luxury watch retailer, has experienced a notable upturn in its shares, with a rise of 11.5% to 715.5p on Thursday. This surge follows the company’s announcement of impressive annual sales and profits, along with a positive outlook for the upcoming financial year, which has been well-received by investors.
Amid concerns about slowing growth and the luxury goods market’s resilience, 2023 presented challenges for WOSG shareholders. Nevertheless, the company’s strong performance has instilled confidence in the market, driven by robust sales figures and a promising supply outlook from key brands.
WOSG’s CEO, Brian Duffy, emphasized the continued strength of luxury watch demand, outpacing supply in the current macroeconomic environment. The company’s expanding client base and increasing average selling prices are contributing to its success, seemingly insulated from cost-of-living pressures.
Impressive Financial Results
Watches of Switzerland reported record-breaking sales and pre-tax profits for the year ending April 30, 2023. Sales surged by 25% to £1.54 billion, while pre-tax profits increased by 23% to £155 million. Additionally, free cash flow grew by £33.7 million, reaching £145.8 million.
In the UK and Europe, the luxury goods group, part of the FTSE 250, achieved a 10% increase in sales, totaling £890 million. Meanwhile, the US market experienced a substantial 53% sales increase, reaching £653 million. Luxury watch sales grew by 28% year-on-year, driven by both price increases and volume growth, though the growth in luxury jewelry sales was more modest at 10%, partly due to economic challenges and the company’s focus on full-price sales.
2024 Guidance and Expansion
Watches of Switzerland has expanded its international showroom network, adding 28 showrooms in the UK, US, and Europe. Additionally, the company upgraded 13 showrooms, including the introduction of its Goldsmiths Luxury format. The firm has reasserted its guidance for full year 2024, demonstrating confidence in organic growth prospects and an active search for acquisitions in a fragmented market.
Despite the challenging economic environment, Watches of Switzerland anticipates revenues between £1.65 billion and £1.7 billion this year, representing constant currency growth ranging from 8% to 11%. The company expects its adjusted earnings before interest and tax margin to remain in line with the previous year’s 10.7%. CEO Brian Duffy noted that the company is well ahead of its Long Range Plan and is set to unveil its growth ambitions for full year 2028 later this year.
Market Observations
Danni Hewson, Head of Financial Analysis at AJ Bell, noted that other sectors within the luxury goods industry have encountered difficulties, including declining diamond prices. She highlighted that Watches of Switzerland reported a “more challenging trading environment” in May, leading to earlier share price losses as investors questioned the sustainability of the luxury goods boom.
Hewson concluded that Watches of Switzerland’s unexpected positive performance has caught investors by surprise, with a significant share price jump. More customers are showing interest in buying watches, and average selling prices are on the rise, while expansion plans are progressing well, positioning the company ahead of its long-range plan. Despite the uncertain economic backdrop, the company’s decision not to downgrade its guidance has been perceived as a significant positive by investors.
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