Watches of Switzerland profits dip 39% despite revenue surge

Watches of Switzerland has reported a 39% decline in its profit before tax from £67m to £41m despite a 4% increase in revenues to £785m, driven by strong demand in the US. According to the group, its profits were affected by acquisition-related costs and integration efforts. For the 26 weeks to 27 October 2024 (H1 FY25) its adjusted EBITDA also fell from 73m to £66m, down 9% in constant currency and 10% reported in the prior year. Meanwhile, the group’s adjusted EBIT margin also declined to 8.4% (H1 FY24: 9.6%), due to product mix and lack of leverage of fixed costs. However, in the US the group recorded a 11% increase in revenues to £355m, while its revenues in the UK and Europe slightly dipped by 1% to £430m. Its luxury watches revenue also dipped by 3% to 649m in H1 FY25 as it was impacted by one-off increases in showroom stock levels to enhance displays and client experience in Q1 FY25, particularly in the US The group’s luxury watches category represents 83% of its revenue, a reduction of 500 bps due to Roberto Coin increasing the mix of jewellery. Demand for its key brands, particularly products on Registration of Interest lists, continued to be strong. Certified Pre-Owned and vintage is also performing “strongly”, with Rolex Certified Pre-Owned becoming the group's second biggest luxury watch brand. Additionally, the brand’s luxury jewellery revenues were up 103% to £95m, driven by the acquisition of Roberto Coin which contributed £51m of revenue in the period. Group luxury jewellery revenues excluding Roberto Coin was -6% with positive trends in the UK market (+4%). US luxury jewellery revenue was impacted by the squeeze on the commodity bridal category and prior year clearance activity. Overall, following a period of volatile conditions in the prior financial year, the group saw Continued stabilisation of the UK market in both luxury watches and jewellery. Lastly, luxury branded jewellery significantly outperformed non-branded jewellery, with double digit growth within its retail and online estate. Looking ahead, according to the Watches of Switzerland Group the FY25 guidance remains unchanged, underpinned by “sequential trading improvement”, visibility of intake and the large showroom projects opening in the second half of the year. It also added that it is “well positioned for a good holiday trading period, having made an encouraging start in November”. The company expects its group revenues to be between £1.67 - £1.73bn, recording a growth of 9% - 12% at constant currency. It also expected adjusted EBITDA margin to be between +0.2 to 0.6 percentage points. Brian Duffy, chief executive officer, said: "We are pleased to report H1 FY25 revenue growth of +4% in constant currency reflecting an encouraging improvement in trading in Q2, driven by growing demand in the UK and US, and consistent growth in client registration lists, along with the acquisition of Roberto Coin in the period. "As previously outlined, in Q1 we increased showroom stock levels of key brands to enhance displays and client experience, particularly in the US. With the stock rebuild complete, in Q2 we drove significantly improved US revenue of +24% (constant currency) and revenue in the UK market turned positive. Price increases from brands in the half have been modest, and this has also positively influenced consumer sentiment. Consequently, overall Group revenue increased +11% in Q2, in constant currency. He added: "Q3 trading has started encouragingly, and we have continued with our showroom transformation programme. Looking ahead, key showroom openings in H2 include the flagship Rolex boutique in Old Bond Street, London; Audemars Piguet Town House, Manchester; Rolex introduction in Plano, Texas, and a reintroduction in Jacksonville, Florida; and the conversion of Mayors Lenox, Atlanta, to a Rolex mono-brand boutique. Our trading momentum through November, visibility of intake and second half opening of large showroom investments support our full year guidance, which is unchanged.”