Rolex Prioritising Steel Watch Production Prompts Watches Of Switzerland Profit Warning
Unexpected downturn in trading has WoSG cutting up to £170 million from its FY24 sales forecast.
by Rob CorderJanuary 18, 2024
Watches of Switzerland Group’s share price dropped by 30% in early trading today after it issued a chastening downgrade to its revenue and profit forecasts for this financial year.
"Watches of Switzerland Group’s share price dropped by 30% in early trading today after it issued a chastening downgrade to its revenue and profit forecasts for this financial year.
Watches of Switzerland Group’s share price dropped by over 30% after it lowered forecasts for FY24, but its stock has been sliding since peaking at over 1,400p in early 2022 to under 400p today.
Brian Duffy, chief executive of WoSG told a conference call with analysts: “I’m sorry. We did not see it coming”.
What the business appears not to have seen coming was a drop in average transaction values caused, in part, by Rolex dialling down allocations of its more expensive models in precious metals and focusing more on steel watches.
Mr Duffy explains that, while Rolex delivered the predicted number of watches to the retailer, the product mix was not what was expected. “We did not anticipate a drop in our average selling price,” he admits, adding that the company was previously receiving more gold and precious metal watches with higher price points, but is now being sent more steel.
“That was a surprise,” he adds. “We did not anticipate that product mix change.”
Rising average transaction values have been the miracle that just keeps giving for the luxury watch industry in recent years.
Since 2017, the total number of Swiss watches exported to the world has dropped from 24.3 million to around 16 million in 2023. Over the same period, the total value of those exports has risen from CHF 18.8 billion to over CHF 23.5 billion.
The trend is mostly down to a sharp decline in quartz watch exports while mechanical watches have held up, but there is also movement within the mechanical category with the volume of exports dropping from 7.2 to 5.8 million over the past seven years while the total value of those watches has risen from CHF 15.3 billion to well over CHF 20 billion for the past two years.
An end of year report from retail analyst GfK shows total watch sales in Great Britain rising by 1% in 2023, but only the over £10,000 price segment showed significant growth of 13.3%.
The value of sales in the mid-market fell sharply with £1,000 to £3,000 down by 20% and £3,000 to £5,000 dropping 6.2%.
The key Christmas peak was considerably lower than WoSG had previously forecast.
“The festive period was particularly volatile this year for the luxury sector, with consumers allocating spend to other categories such as fashion, beauty, hospitality and travel. Whilst we are disappointed with this trend, we are encouraged by our market share gains in both the US and UK,” Mr Duffy says.
“In all my years in retail, I have never known a season so difficult to predict,” he adds.
This morning’s trading update did not distinguish between the group’s relative performance between the UK and USA, but later comments in the analyst call suggest trading was, and remains, considerably tougher on this side of the Atlantic.
Mr Duffy says the US is still looking strong, but he expects UK sales to be down by “a few points” this year.
For the first half of its financial year, the 26 weeks to October 29, 2023, year-on-year sales were down 4% in the UK and Europe, while US sales rose by 11% at constant currency.
The financial year for WoSG ends in April, but Mr Duffy and his team are already looking through to the rest of the 2024 calendar year.
On the crucial question of Rolex allocations, he anticipates the mix between less expensive steel watches and the more pricey pieces in precious metals and gems, to be similar to the split since November last year. “That is just my personal opinion, but we are trying to get more information from Rolex,” Mr Duffy clarifies.
Capital expenditure on new stores and upgrades is continuing as outlined in the H1 trading update last November.
A new Rolex boutique in Orlando, three times the size of its previous store, opened in November 2023. In the UK, a number of larger Goldsmiths Luxury showrooms have opened in Birmingham Bullring, Trafford Centre Manchester and Metrocentre Newscastle.
Bigger and better Mappin & Webb showrooms have also reopened following refurbishments in Glasgow and Bluewater, Kent.
This year will see Watches of Switzerland open a multi-brand showroom at One Vanderbilt, next to Grand Central station in New York.
The company is also opening its first multibrand showroom on the Continent with a Watches of Switzerland in The Netherlands.
Rolex’s Bond Street showroom is under construction. (Photo: Rob Corder, January 2024)
Arguably the most prestigious opening for the entire group, a three-storey Rolex flagship on London’s Bond Street, has been delayed again.
Originally pencilled-in to open in 2023, its schedule ... "
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