Luxury retailer Watches of Switzerland has significantly upgraded its annual sales forecast following a period of robust demand during the crucial festive season. The London-listed group reported that sales growth exceeded expectations in its third quarter, which concluded on January 25, attributing this success to particularly strong trading over the Christmas and holiday period.
Strong Demand Outstrips Supply
According to the company, consumer appetite for high-end timepieces, including iconic brands such as Rolex and Omega, continues to surpass available supply in both the United Kingdom and the United States. This persistent imbalance between demand and inventory has been a key driver behind the group's improved performance metrics.
Revised Financial Guidance
The firm has now elevated its full-year sales growth projection, calculated on a constant currency basis, to a range of 9% to 11%. This marks an increase from the previous forecast of 6% to 10% growth. The upgrade reflects the sustained momentum observed during the holiday shopping window, which traditionally represents a peak period for luxury retail.
Strategic Acquisition and Margin Pressures
In a strategic move aimed at bolstering its market presence, Watches of Switzerland has acquired a majority stake in Deutsch & Deutsch, a family-owned watch and jewellery chain based in the United States. This transaction is set to add four Rolex-anchored showrooms located in Texas, potentially enhancing future trading opportunities.
However, the company concurrently adjusted its outlook for underlying earnings margins downward, a revision that tempered investor enthusiasm. This margin compression effectively offset the positive news regarding sales growth, resulting in shares declining by nearly 1% during Wednesday morning trading sessions.
Executive Commentary and Market Context
Brian Duffy, Chief Executive of Watches of Switzerland, expressed satisfaction with the group's performance. He stated, "I am pleased to report another period of strong performance, building on the sales momentum established in the first half and reflecting strong trading over the holiday period."
Duffy further noted, "It is particularly pleasing to be achieving these results despite an unusually volatile operating environment, including macroeconomic uncertainty and tariffs, and is testament to the collective contribution of our colleagues which will be reflected through our staff incentive arrangements."
Impact of International Tariffs
The luxury watch sector has faced challenges from elevated tariffs imposed on Swiss imports by the United States under the administration of President Donald Trump. In a positive development, an agreement was finalised last November between the US and Switzerland, which reduced the tax rate on Swiss imports entering the American market from 39% to 15%.
Looking ahead, Watches of Switzerland anticipates an improvement in profitability during the second half of the financial year compared to the initial six-month period. This forecast suggests confidence in managing the current headwinds while capitalising on ongoing consumer demand for luxury timepieces.
