Swatch optimistic as demand increases in Chinese and European markets

Swatch Group on Friday painted a brighter outlook for the rest of the year as the world's largest watchmaker said demand for Swiss timepieces in China and Europe is improving.

Swatch Group on Friday painted a brighter outlook for the rest of the year as the world's largest watchmaker said demand for Swiss timepieces in China and Europe is improving. The maker of Longines, Tissot and Omega watches said it expected "very positive growth in local currency" for the rest of 2017 after net profit rose 7.2 percent in the first six months of the year. Net profit attributable to shareholders rose to 269 million Swiss francs ($282.8 million) from 251 million, but fell short of the 285 million expected by analysts polled by Reuters.

Swatch highlighted "significant growth" in mainland China, one of its most important markets, adding that Hong Kong sales had stabilised after a long decline, with data this week showing a rise in Swiss watch exports. Chief Executive Nick Hayek told Swiss news agency AWP that he expected local currencies sales growth of 7 to 9 percent this year.

"Having seen the development of Swiss watch exports this year, most people expect the watch market to improve in the second half of the year, but they don't expect any fireworks," said Jon Cox, luxury goods analyst at Kepler Cheuvreux. In recent years Swiss watch sales in China and Hong Kong have been hit by a crackdown on gift giving and corruption under Chinese President Xi Jinpeng. There was also an improvement in Europe, a market hit last year by extremist attacks which deterred many visitors from destinations such as Paris.

The company reported a strong start to the second half of 2017, saying there had been accelerated growth of all brands in June and the first few weeks of July, particularly among its more expensive brands which include Breguet and Blancpain. "The Swatch Group anticipates very positive growth in local currency in the second half of the year," the company said in a statement.

Apple Watch Competition Remains

Swatch said sales of watches and jewellery had been "very positive" in the first half, despite the highly valued Swiss franc taking a bite out of the figures. Sales fell 0.3 percent to 3.71 billion francs versus the 3.73 billion forecast by analysts. With currency effects, removed sales rose 1.2 percent. Kepler's Cox said he expected mid single digit sales increases for Swatch for the whole of 2017 in constant currencies after an acceleration to high single digit sales improvement in the second half.

But he said problems remained with weak margin improvements at Swatch, while connected watches like Apple Inc's Apple Watch remained a threat to Swatch which generates roughly a third of its revenue from watches which sell for less than 1,000 francs. Swatch shares, weakened after rival Richemont reported disappointing results in May, were trading slightly higher in early trading, up 0.3 percent to reverse earlier losses.

Luca Solca, an analyst at Exane BNP Paribas, remained cautious on the stock, saying the upswing in higher priced watches favoured Richemont - the owner of Cartier - more than Swatch. "Overall we seem to be slowly but surely seeing improvement in final demand from consumers," said Solca. "But there is a long way to go."


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