An employee arranges a display of Omega SA watches in the window of a Watches of Switzerland Group Plc store on Regent Street in London, Britain, on Wednesday, August 30, 2023. One of Watches of Switzerland Group Plc's biggest investors has reduced its stake in the UK-listed watch retailer less than 24 hours after Rolex SA decided to buy a competitor, Bucherer AG. Photographer: Jose Sarmento Matos/Bloomberg via Getty Images
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Shares in Watches of Switzerland plunged 32% at 11 a.m. London time on Thursday after the luxury watch retailer cut its forecast for fiscal 2024.
“Despite a positive start to the start of the third quarter of fiscal 2024, WOSG experienced volatile trading performance in the lead-up to and beyond Christmas as challenging macroeconomic conditions impacted consumer spending in the luxury retail sector,” the company said in a trading update.
“We now expect these challenging conditions to persist for the remainder of our financial year.”
The company now expects sales of 1.53 billion pounds to 1.55 billion pounds ($1.94 billion to $1.97 billion), down from its previous forecast of 1.65 billion pounds to 1.7 billion pounds. Currency-neutral sales growth – which excludes currency fluctuations – has been revised down significantly, from 8-11% to 2-3%, while EBIT margin (earnings before interest and tax) is now forecast at 8.7-8.9%.
The company said demand for its key brands remained strong in the US, where sales continued to grow at double digits, but the UK was “more challenged” and affected a wide range of luxury watch brands and non-branded jewellery.
“The festive season was particularly volatile for the luxury sector this year as consumers diversified their spending across other categories such as fashion, beauty, hospitality and travel. While we are disappointed with this trend, we are encouraged by our market share gains in both the US and the UK,” Watches of Switzerland CEO Brian Duffy said in a statement.
“We remain confident in the markets we operate in, our model and the execution of our long-haul plan that we announced to the market in November 2023.”
According to analysts, the stock is still a “buy.”
The U.K.-based retailer outlined plans in November to more than double sales and profits by fiscal 2028, as Duffy said there were opportunities in the pre-owned market, particularly in certified pre-owned Rolex watches.
Despite the market panic, analysts at Jefferies and Investec reiterated their “buy” ratings on Watches of Switzerland stock in flash notes on Thursday.
Jefferies equity analysts said they “take some comfort in the fact that the U.S. business continued to grow at double-digit rates.”
“Today’s unwelcome developments do not impact WOSG’s continued ability to grow its share in its two key end markets,” they said.
“However, the magnitude of the adjustments to the forecast range will be difficult to manage in the near term.”
Analysts at Investec noted that management reiterated its confidence in the five-year long-term plan announced in November.
“Achieving this is not reflected in the valuation, but the market is likely to focus on short-term trading in the near term,” they added.