Watches of Switzerland Group thinks big

More than coincidence? At the same time as the Watches of Switzerland Group (WOSG), one of the world’s largest luxury watch retailers, announced it would be reopening its 100-some stores in the United Kingdom on June 15, shares in the group, which is listed on the London Stock Exchange, returned to their initial public offering price. For investors, it’s been something of a roller coaster ride. After the group went public on May 30, 2019, its share price shot up, rapidly gaining more than 40%, but was halved when the economy came to a standstill in the wake of Covid-19. Investors were spooked by the prospect of months of closed doors as the group pulled down the shutters on its 140 stores, on March 19 in the US and on March 23 in the UK, with only online sales to mitigate the impact.

And yet since early April WOSG shares have rallied, from 180p to 270p at June 17 (+50%): exactly the price of the initial public offering. In a sector whose immediate future is a minefield of uncertainty, this catch-up phase is welcome news, particularly as the financial markets tend to be tougher on manufacturers. Indeed, share prices for the sector’s two main players, Richemont and Swatch Group, are struggling to make up lost ground: Richemont has seen its share price fall by 24% year-on-year while Swatch Group shares have declined by 27% over the same period.

Given that a share price is meant to reflect a company’s current state of health and offer guidance on future performance, Watches of Switzerland appears to be in good stead, particularly considering that the group’s operations are in sell-out, i.e. sales to end customers. This is exactly the message chief executive Brian Duffy is sending out: “Luxury watches continue to be a supply-driven segment with robust demand and unique value preservation characteristics,” he said in May. “Longer term, we are well positioned to deliver on our plans to leverage our leading position in the UK and become a leader in the US luxury watch market.”

The group’s financial results underpin this confidence. For its financial year to end April, revenue increased 5.9% to £819.3 million. Earnings are expected to be between £75 and 78 million. Prior to lockdown, the group’s revenue was up 16%. A surge in e-commerce during the last six weeks of the group’s financial year helped lessen the impact of store closures; online sales jumped by 46% compared with the same period in 2019. The Watches of Switzerland Group also has a healthy balance sheet, with liquidity of £83 million and net debt of £131 million (1.2x earnings). In its announcement, the group declared it was sufficiently well armed to sustain continued store closures and dampened consumer sentiment.

This may not be necessary for a group that enjoys longstanding partnerships with 46 of the world’s most prestigious watch brands, which it represents at 140 stores under the Watches of Switzerland name, as well as Goldsmiths and Mappin & Webb in the UK, plus Mayors in the US. The group also operates monobrand stores for Audemars Piguet, Breitling, Omega, TAG Heuer and Rolex – the brand with the coronet accounts for almost half of the group’s sales. It’s easy to see, then, why Brian Duffy should take a confident view, being virtually assured of a captive audience. Along with Audemars Piguet and Patek Philippe, Rolex is one of the most desirable brands with waiting lists of months, if not years, for its most coveted models, whether the economy is good or bad.

As well as being the leading luxury watch retailer in the UK, Watches of Switzerland has a second string to its bow with its operations in the US, which has reclaimed the top spot as Swiss watchmakers’ main export market. The UK has confirmed its position as the number-one European market, ranking sixth globally behind Asian countries (China, Hong Kong, Japan and Singapore). Given the current state of distribution, as e-commerce continues to make inroads and brands move forward with developing their own sales networks, Watches of Switzerland remains strongly positioned. The group’s online sales and the opening of new monobrand stores alongside its established doors indicate that its ambitions are not to be taken lightly.