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Good times for Watches of Switzerland Group

Good times for Watches of Switzerland Group

Watches of Switzerland Group LON:WOSG, the UK-based retailer of high end luxury watches and jewellery reported full year 2022 results this week.

The group engages in the retail of luxury watches and jewellery in the UK and US through its 171 branded stores such as Goldsmiths, Watches of Switzerland, and its mono-brand partnership stores under the brand banners of Rolex, Patek Philippe and Audemars Piguet.

For results to 31st March 2022, WOSG boasted record sales with revenue up 40% and adjusted operating profit up 68% to £130m as demand continued to be strong for luxury timepieces and the group benefited from new store rollouts and rising average selling prices (ASPs) during the period. Adjusted EBITDA increased 54% to £162m. Return on capital employed also rose strongly to 27.4% for the year, and WOSG boasted a continued strong balance sheet, with net debt down £30m to £14m as of 1st May 2022

Losing no time in the US

Operationally, 2022 was another year of great progress for WOSG. The group spent £41m in expanding its store estate, with 18 new retail sites added to the roster, including the acquisition of five new stores in the all-important US market, bringing the total to 40 US stores, stretching across both coasts. Plans were also set in place for expansion into Europe during the year, with six locations pencilled in for mono-brand boutiques in Copenhagen, Dublin and Stockholm in 2023.

Financial and operational success for the year, alongside robust trading in the post results period gave confidence for Brian Duffy, Group CEO to issue a positive statement to the market.

 

 

It is our distinctive and proven business model, the strength of our brand partnerships, our international scale, our bold marketing campaigns and our dedication to client service which sets us apart. Taken together, these inherent strengths have seen us attract new consumers and continuously gain market share, strengthening our position as the destination for luxury watches and luxury jewellery. We enter FY23 with strong momentum, with consumer demand continuing to outpace supply, and within this environment, we are benefitting from our strength both in showrooms and online.

The US remains a significant expansion opportunity for Watches of Switzerland, which has outlined the prospects for the market across several years. Consumers in the US market currently have a much lower luxury watch ownership per capita than the UK, where 3.5x as much revenue per capita is generated compared to the US. WOSG sees this as a significant opportunity to expand the luxury watch category in the US, as well as growing market share, which the group currently estimates to be in the double digits.

Timely developments

Revenue from WOSG’s US division grew 48% to £428m for the year with all brands performing above expectations. The five acquired stores during the period added a total of $100m in additional revenue, and WOSG stated it remains to have ambitious plans for site development and further store acquisitions in 2023.

The luxury watch category is almost exclusively dominated by a handful of private, some family owned, Swiss companies. Rolex, Patek Philippe, Audemars Piguet and Hublot are all examples of this private structure, which typically produce less watches in a year than there is demand for.

With this dynamic, access to watch supply remains a challenge for the company, with much of the showroom stock being held for demonstration purchases only, and customers going on to waiting lists for the most popular brands. Interestingly, on the recent Q4 WOSG earnings call, management noted the supply dynamic has the potential to improve in FY2023 due to lockdowns in China creating some surplus in luxury watch supply.

I was in Switzerland last week and saw many of the brands there directly and obviously they are all experiencing a downturn. In China, it’s pretty public. Now, what’s happening particularly in April, the first quarter wasn’t what everybody was hoping for. In April there’s been a much more negative impact with the lockdowns in Shanghai and clearly the overall distribution and logistics are all getting hit. Should that result in more products being available for the non-Chinese market? Logically, yes. Again, we haven’t seen any impact of that yet. But, yes, logically you would think there should be some more product around.
Brian Duffy, Group CEO

(It should be noted WOSG has no exposure to China)

For the year ahead, WOSG forecasts revenue reaching £1.5bn, equivalent to growth of 21%. Profit is also expected to grow well, with analyst consensus estimates showing forecast operating profit of £170m (+31%) and EPS of 54p (+28%). Current estimates infer a P/E of 14 for the business. After another year of excellent trading, WOSG shares look highly attractive at current levels.

WOSG opened trading at GBP 7.80 on 8th July 2022.

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