ZURICH (Reuters) – Swatch Group reported a sharp drop in first-half sales and profit on Monday as the world’s largest watchmaker struggled with weaker demand in China but forecast a significant recovery in business later in the year.
The Swiss maker of Tissot, Longines and Omega watches saw its net sales fall 14.3 percent at constant exchange rates to 3.445 billion Swiss francs (3.53 billion euros) in the six months to the end of June, below the 3.75 billion francs expected by analysts in a Visible Alpha consensus.
A negative exchange rate effect of 145 million francs also weighed on sales during the first half, the group said.
In Zurich, Swatch shares were down 9.8% at 10:15 GMT.
Operating profit fell to 204 million francs from 686 million a year earlier, with an operating margin that plunged to 5.9% from 17.1% a year earlier. Net profit fell to 147 million francs from 498 million francs.
“A less than glorious half-year for Swatch Group in all respects,” commented Jean-Philippe Bertschy, analyst at Vontobel.
The group attributed the drop in sales to a collapse in demand for luxury goods in China, with only the Swatch brand bucking the trend with a 10% increase in sales in the country.
The Chinese market is expected to remain challenging for the entire luxury goods industry until the end of 2024, he added, while specifying that “China’s potential remains intact.”
The watchmaker expects strong growth in Japan and the United States in the second half of the year, driven by investments in the group’s retail network. The outlook in many European countries is promising, the group added.
“The group expects the situation to improve significantly in the second half of the year,” the statement said, when the full impact of the cost-cutting measures will be felt.
Other companies in the sector are also facing difficulties, with British luxury group Burberry issuing a profit warning on Monday, scrapping its 2024 dividend payment and replacing its chief executive.
(Written by Dave Graham, with contributions from John Revill; Dagmarah Mackos, edited by Augustin Turpin and Blandine Hénault)
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