Dec 17, 2020
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Watches of Switzerland results impress despite big H1 headwinds

Dec 17, 2020

Despite enduring “significant headwinds" in H1, Watches of Switzerland still managed to strengthen its leading position at the luxury end of the market, the specialist retailer said Thursday morning.

Watches of Switzerland

And the London-listed business had much to be happy about, with positive sales numbers in Q2 and at the start of H2, impressive online gains, plus rising core earnings and vastly reduced debt levels.

All that added up to a “strong” performance across the 26 weeks to 25 October and upwardly revised guidance for its full year. As a result, the business is even planning to return the government’s furlough support payments taken while its stores were closed due to Covid-19 restrictions.

What would the business have done without those “significant headwinds”?

So let’s start with H1. Despite having endured a period of enforced store closures in Q1, half-year revenue slipped just 2.6% in constant currencies to £414.3 million, or down 3.4% in reported terms.

But overall numbers certainly perked up in Q2, with revenues rising 21.5% in constant currency terms, and by 19.8% in reported terms.

A “resilient” UK performance helped limit H1 revenues to just a 7.4% decline despite enforced “store closures, lower traffic since reopening and the impact to global travel”. 

And its tourist and airport business was hit hard in H1, accounting for just 7.4% of group revenue compared to 33.6% a year ago.

But business lost in stores was more than offset by an online performance that saw e-commerce sales leap 65.4% over the period. The gains were underpinned by a “focus on digital marketing with impactful events and campaigns launched”, it noted.

The performance was also helped by the opening of five new monobrand boutiques opened in the UK, including one Rolex boutique, three TAG Heuer boutiques and one Tudor boutique, the first in Europe.

WoS also said its US business continued to advance with H1 sales rising 11% in constant currency terms, “illustrating the adaptability of the business model”.

It also said the acquisition of Analog Shift, the US retailer of vintage and pre-owned watches, is expected to further advance the group's “strong and growing position in the US market”.

Stepping into H2, group revenues in the seven weeks to 13 December were also up 11.9% in constant currency, and by 11.2% in reported terms. UK sales were up 7.7% in the period and e-commerce sales more than doubled.

While H1 was hit by lockdowns, for H2, its UK store network traded for 44% of potential hours as stores were also closed for four weeks due to the national lockdown in England and for shorter periods in Wales and Scotland.

If revenues stood up well across H1, earnings did even better. Adjusted EBITDA rose 26.5% to £52.2 million, achieving an adjusted EBITDA margin of 12.6%, up from 9.6% a year ago. Statutory operating profit jumped 52% to £41.5 million. Even net debt was cut to £22.7 million from £92 million a year ago.

CEO Brian Duffy said: "We have continued to deliver on our strategic priorities during the first half, achieving a robust performance against significant headwinds, further consolidating our position in luxury watches and demonstrating the unique, supply-driven qualities which underpin the resilience of our category and the strength of our business”.

Following that upwardly revised outlook, the company now expects full-year revenues of £900 million to £925.0 million, up from £880 million to £910 million, with EBITDA margin and Adjusted EBITDA margin rising to 1.5-2% against last year, up from 1-1.5%.

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