Watches Of Switzerland Shines in U.S. Market Growth

Watches Of Switzerland Group Plc ((GB:WOSG)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for Watches Of Switzerland Group Plc painted a largely positive picture, with strong performance indicators in several key areas. The company reported substantial growth in the U.S. market and significant advancements in ecommerce and their Certified Pre-Owned program. While challenges such as margin pressure from U.S. tariffs and a modest performance in the U.K. market were acknowledged, the overall sentiment was optimistic, with highlights significantly outweighing the lowlights.

Strong U.S. Sales Growth

The U.S. market emerged as a standout performer, with retail sales surging by 21% in constant currency. This impressive growth was attributed to the expansion of the showroom network and robust demand across various brands and categories, underscoring the market’s critical role in the company’s overall success.

Ecommerce Success

Ecommerce operations also experienced a significant boost, growing by 17% in constant currency. This growth was particularly pronounced in the U.S., following strategic investments in a localized team and the implementation of a new Shopify platform, which enhanced the online shopping experience.

Certified Pre-Owned Program Expansion

The Rolex Certified Pre-Owned program has quickly become the group’s second-largest brand, with notable expansion in both the U.S. and U.K. markets. This program’s success highlights the growing consumer interest in certified pre-owned luxury watches.

Luxury Jewelry Segment Growth

In the luxury jewelry segment, Roberto Coin reported a 16% increase in wholesale sales in the U.S. This growth was supported by a successful advertising campaign and the opening of new boutiques, further solidifying the brand’s presence in the market.

Share Buyback and Financial Health

The company completed a GBP 25 million share buyback program and reported a strong free cash flow of GBP 48 million, marking a 71% increase from the previous year. These figures reflect the company’s robust financial health and commitment to returning value to shareholders.

High Net Promoter Score

Customer satisfaction and loyalty remain high, with the company achieving a Net Promoter Score of 94.5%. This metric indicates strong customer approval and suggests a positive outlook for future customer engagement.

Margin Pressure Due to U.S. Tariffs

Despite the positive highlights, the company faced some challenges, including a decrease in net product margin by 90 basis points. This decline was due to an adverse product mix and reduced brand margins resulting from U.S. tariffs.

UK Market Challenges

The U.K. market presented some hurdles, with sales growth at a modest 2%. This performance was impacted by previous showroom closures and a challenging consumer environment, highlighting the need for strategic adjustments.

Adjusted EBIT Margin Decline

The adjusted EBIT margin saw a decline of 30 basis points from the previous year, primarily due to product margin rate declines. This indicates a need for the company to address margin pressures to maintain profitability.

Forward-Looking Guidance

Looking ahead, Watches Of Switzerland Group Plc provided a robust set of metrics and guidance for the fiscal year. The company reported a 10% increase in sales for the first half of the year, driven by a 20% surge in the U.S. and a 5% rise in the U.K. after adjusting for store closures. EBIT increased by 6% to GBP 69 million, and free cash flow soared by 71% to GBP 48 million. The company reiterated its full-year guidance of 6% to 10% revenue growth at constant currency, with capital expenditure expected between GBP 65 million and GBP 70 million. The U.S. market remains a significant growth driver, contributing 59% of adjusted EBIT, with continued focus on expansion, acquisitions, and client-centric initiatives.

In summary, the earnings call for Watches Of Switzerland Group Plc highlighted a positive trajectory, with strong growth in the U.S. market and ecommerce, alongside successful expansion of the Certified Pre-Owned program. While challenges such as margin pressure and modest U.K. market performance were noted, the overall sentiment was optimistic, with strategic initiatives in place to address these issues and drive future growth.