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The boss of the biggest seller of Rolexes in the UK admitted he had underestimated a slowdown in luxury spending after a profit warning sent the group’s shares down more than 30 per cent on Thursday.
Watches of Switzerland, which sells high-end timepieces including Rolex, Audemars Piguet and Cartier, said it had “experienced a volatile trading performance in the run-up to and beyond Christmas”.
Chief executive Brian Duffy said consumers had focused their festive spending on other areas such as fashion, beauty, hospitality and travel, adding he was “disappointed with this trend”. The retailer is the latest in a string of luxury groups to flag a slump in high-end consumer spending following a pandemic-era boom.
“We’re sorry we didn’t see it coming more than we have done, we’re adjusting to it, we’ve recalibrated now [and] we’re on for our long-[term] plan,” Duffy told analysts.
Duffy said the company, which is the UK’s biggest seller of Rolex, OMEGA, Cartier, TAG Heuer and Breitling watches, had received a different mix of Rolex watches from the Swiss manufacturer than normal, reducing its average selling price.
Rolex sent the company predominantly steel-based watches, rather than a greater number of more expensive ones made of steel and gold.
“They produced more steel and less of the precious metal and that was a surprise to us and fairly late on in the period,” Duffy said. He added there was no change in the overall number of Rolex watches it received, and said the shift reflected a more conservative approach from watchmakers amid decreased consumer confidence.
It comes after Watches of Switzerland was buffeted last year when Rolex acquired rival watch retailer Bucherer, raising fears that Rolex could sell more of its timepieces directly to consumers.
Analysts at Peel Hunt said the quarter’s allocation “begged the question” of whether the relationship with Rolex was under strain. “Either way, the change in product mix was extremely damaging and will likely continue to be so,” they said.
Revenue for the company’s financial year is now expected to be between £1.53bn and £1.55bn, down from previous guidance of £1.65bn to £1.7bn. Its operating margin, previously expected to be in line with last year’s 10.7 per cent, is now predicted to be between 8.7 to 8.9 per cent.
The downgrade implies an adjusted annual earnings before interest and taxes range of £133mn to £138mn, compared with £176mn to £182mn previously, according to analysts at Investec. This is roughly a 25 per cent downgrade to management’s expectations, they said.
Duffy said he was still confident of meeting the company’s long-term goals, however: “We’re disappointed to give you all this news but . . . we’re in a great category and . . . our model is very well positioned competitively, we feel really good about the future.”
Watches of Switzerland said last year it was aiming to more than double its annual sales and adjusted earnings before interest and taxes by fiscal year 2028.
Analysts at Peel Hunt said Thursday’s profit warning was “a blow to sentiment”, adding that management’s long-term plans “could start to look a real stretch if — as we expect — markets stay weak for the foreseeable future”.
Analysts at Jefferies said that “the extent of the adjustments to the guidance range will be painful to navigate in the near term”.
Watches of Switzerland, was backed by Apollo Global Management when it went public in 2019 with a market capitalisation of £647mn. It has been expanding aggressively in the US, which was a rare bright spot for the company in the weeks before and after Christmas. Sales in the US grew at a “double-digit” rate, the group said.
The UK was more challenged, with weak underlying demand and more promotions than expected, the company added.
