Luxury Swatch Group posts significantly lower sales and profit

Swatch felt the effects of weakening demand in the Group's key Chinese market in the first half of 2024. However, the Group deliberately refrained from significantly reducing costs. As a result, profit fell.

From January to June, the Swatch Group generated net sales of 3.45 billion Swiss francs with well-known watch brands such as Omega, Longines and Tissot. This is 14 percent less than in the previous year, Swatch announced on Monday. Calculated in local currencies, sales fell by 11 percent.

Slump in demand in China

The reason for the significantly lower sales was the sharp drop in demand for luxury goods in China as well as in Hong Kong and Macau, it said. Only the Swatch brand bucked the negative trend and even increased sales in China by 10 percent. In good years, the Group generates around a third of its sales in this market.

Business was better in other parts of the world. Outside of China, sales in local currencies remained at the level of the record year 2023, according to the press release. And compared to sales in the first half of 2022, there was even an increase of 5.6 percent.

In the USA in particular, the record-high sales figures of the previous year were achieved, while Japan even set new records with a 30% increase in sales. Business also grew well in important markets such as South Korea, India and the United Arab Emirates.

Developments in Europe were subdued. Although retail sales in the brand's own stores remained stable, there were signs of restraint in wholesale due to the geopolitical conflicts. Concerns about excessive stock levels caused sales at retailers to fall by 10 percent. Switzerland and Spain were positive exceptions.

Margins are shrinking

Falling sales had a direct impact on results, partly because marketing costs were barely cut and capacities were maintained, particularly in production. Swatch explained that it had deliberately refrained from making redundancies.

The operating profit (EBIT) therefore fell by 71 percent to 204 million Swiss francs. And the corresponding margin fell from 17.1 percent to 5.9 percent. The bottom line was a 70 percent lower net profit of 147 million Swiss francs.

Difficult situation in China

Looking ahead to the coming months, the Swatch Group expects the "difficult situation" in China, Hong Kong and Macau to continue for the entire luxury goods industry. However, the long-term potential for these sales markets remains intact, it said.

On the other hand, the Group expects strong growth in Japan and the USA in the second half of the year. The prospects in many European countries are also promising. The Omega brand, for example, should benefit from its appearance as official timekeeper of the Olympic Games in Paris.

At the same time, the cost-cutting program introduced at the beginning of the year has begun to bear fruit, Swatch continued. The full positive effects should be felt in the second half of the year. The Group should then clearly be more profitable.

The first signs of this were seen in June with an increase in the operating margin to over 15 percent. This is a positive sign for the second half of the year, Swatch explained.