Swatch feels headwind in China business
Published: Thursday, Mar 21st 2024, 15:50
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Swatch Group increased both sales and earnings in 2023 despite the strength of the Swiss franc. However, Chinese customers' appetite for consumption has been waning for several weeks. They have become more reluctant to buy watches, said Swatch CEO Nick Hayek at the watch company's annual media conference on Thursday.
Swatch had already published the key figures from last year's consolidated financial statements and balance sheet at the end of January: according to these, annual sales grew by 5.2 percent to 7.89 billion Swiss francs, with growth of almost 13 percent calculated in local currencies. The stronger Swiss franc cost the company over half a billion francs in sales, said CFO Thierry Kenel.
The strength of the Swiss franc also left its mark on profitability: operating profit at EBIT level rose less significantly than sales by 2.8% to CHF 1.19 billion, and the margin fell slightly to 15.1%. This was also due to the very extensive investments of over 800 million made in technology, real estate and stores during the year.
The net profit of the Group with well-known brands such as Omega, Longines and Tissot increased by 8.1 percent to CHF 890 million. Shareholders are to receive a dividend of CHF 6.50 per bearer share, an increase of 50 centimes.
Weakening business in China
In addition to the industry-wide strengthening of the US market, the Greater China region was primarily responsible for this growth. Sales in China, Hong Kong and Macau increased by over a fifth as a result of the coronavirus measures that were lifted at the end of 2022, meaning that the region now accounts for a third of total sales.
However, business in China has been weakening since the beginning of 2024 at the latest. This was reflected in the February statistics on Swiss watch exports published this week, as well as in the financial statements of the luxury goods group Kering with its flagship brand Gucci.
Chinese customers have become more cautious, Nick Hayek also told media representatives on Thursday. Although interest in Swiss watches remains high in China and the money to buy a watch is available, customers are waiting longer to make a purchase than in previous years.
According to Hayek, this has led to a noticeable slowdown in the very strong growth of the past year in China in recent weeks. This weak phase will continue for a few more months. Hayek did not want to make any growth forecasts for the Group for 2024 as a whole.
Hope for a weaker franc
Meanwhile, Hayek took a positive view of the Swiss National Bank's (SNB) decision to lower key interest rates, which was also made on Thursday. "This will hopefully lead to the overvalued Swiss franc weakening somewhat," he said. The strong Swiss currency had already cost the company a good 100 million in sales in January and February.
Hayek sees opportunities for growth in India, where Omega has already had a local presence for over twenty years. Meanwhile, Tissot is celebrating success with the T-Touch with sports functions, which was launched in Germany in November.
In addition, the Swatch models in the design of the Omega Moonwatch and the Blancpain Fifty Fathoms continue to be very popular worldwide and have attracted a lot of attention to the two luxury brands, it was said. On March 26, a "MoonSwatch" with a Snoopy design and moon phase display will hit the shelves.
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