Source: AFP
Swiss watch group Swatch saw first-half profits sink due to the crisis in China’s luxury goods market and warned on Monday that the core market was likely to remain difficult throughout the rest of the year.
Profit fell 70.5% to 147 million Swiss francs ($164 million) on a 14% drop in sales to 3.4 billion francs.
Known for its brightly colored plastic watches, Swatch also owns a number of luxury brands including Longines, Omega and Tissot, and said it was falling demand for luxury goods that was hurting its performance.
The sales decline was “caused by a sharp decline in demand for luxury goods in China,” including Hong Kong and Macau, the company said.
Analysts polled by Swiss financial news agency AWP had expected a much higher net profit of 354 million francs.
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Shares in Swatch were down 9.3% by midday, while Switzerland’s SMI index was up 0.4%.
“Swatch Group is more exposed to Chinese middle-class consumers, who are clearly on foot,” Bernstein analyst Luca Solka said in a note to clients.
The deepening economic malaise in the world’s second-largest economy is being felt keenly by luxury companies, with Burberry stepping down as its chief executive on Monday after posting “disappointing” results mainly due to weak performance in China.
Swatch attributed the poor performance to its decision to hold off on layoffs and maintain production capacity to be able to respond to a market recovery.
It said other cost-cutting measures it has taken will begin to bear fruit in the second half of the year.
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Overall, Swatch said it “expects the situation to improve significantly in the second half of the year.”
However, the Chinese market will likely remain challenging for the entire luxury goods industry until the end of the year, it said.
“However, China’s potential remains intact,” Swatch said.
“The current situation presents the Group’s brands in the lower price segment with excellent opportunities for further growth and market share gains,” he added.
The company pointed out that the Swatch brand is reversing the negative trend and increasing its sales in China by 10%.
Source: AFP