Watches of Switzerland Group LON:WOSG, the UK-based retailer of high end luxury watches and jewellery published its first quarter results today (16th August), and it seems that the high-end luxury goods consumer is generally unaffected by the depressed economic climate if the purchase of jewellery and luxury watches is a good economic barometer.
WOSG reported 25% increase in growth year-on-year on a constant currency basis, with revenues of GBP391m, up from GBP297m for 1Q21. Brian Duffy, chief executive said: “The first quarter continued with strong momentum throughout, and we carry this positive momentum into the second quarter. Despite the well-publicised concerns about the macro-environment, demand for our products remains robust with client registration of interest lists continuing to extend.”
Breaking the results down, WOSG had a particularly strong quarter in the UK, as its showrooms opened up again after Covid-19, releasing pent-up demand for luxury items after lockdown and the company had the opportunity to de-stock. Duffy said: “We have an exciting and growing pipeline of new projects, and I am pleased to announce that we will relocate our current Rolex Boutique on Bond Street, which had 900sq ft of shop floor, to a new 7,200sq ft location on Old Bond Street in 2023. This new flagship will reflect the importance of the London market and the special relevance of London to the history of Rolex.”
The new store at Old Bond Street will enhance WOSG’s London retail offering as the company refreshed and enhanced its Watches of Switzerland flagship Regent Street multi-brand showroom this year.
Regional expansion
WOSG has also been enhancing its regional UK retail footprint, with its Goldsmith Luxury showrooms updated in Belfast and Bluewater, Kent and has opened new boutiques in Bristol and Sheffield. The company also benefitted from Covid-19 travel restrictions being lifted and reported strong performance from its airport outlets – given the well-publicised problems at Heathrow and Gatwick this year, presumably potential customers have a lot longer to browse in shops at the duty-free lounge.
The US also contributed strongly to WOSG’s performance with revenue up 72% year-on-year, with revenue of GBP152m on a constant currency basis. Again, WOSG has not been tardy in expanding its retail presence post-lockdown, with new stores opened in New Jersey and Atlanta. Duffy said: “Within a large, diffuse and growing market, we are benefitting from our distinctive business model – namely our investment in leading store design, the strength of our brand partnerships, our international scale, our bold marketing campaigns, our advanced systems technology, and our dedication to client experience.”
The biggest contributor to revenue was luxury watches, with revenues from the sub-sector up 32% year-on-year, contributing GBP342m in revenue, which represented 87% – the same as in 2021. However, jewellery is making a larger contribution, bringing in GBP27m, up 36% year-on-year. WOSG isn’t just all about expensive boutiques in the right locations, group ecommerce sales were up 14% compared to 2021, as WOSG develops its multi-channel strategy.
The company is also looking for opportunities across the Channel, opening its first boutique on the continent in Stockholm: “We continue to focus on attracting new clients and growing market share in the UK and US. We have seen positive early results from our expansion into Europe. As we continue to invest in our multichannel model and new incremental projects, we remain confident in our long range plan,” said Duffy.
Underlying resilience
Duffy is confident for WOSG future performance, he said: “…we believe that the strength of the luxury watch category, with its unique supply/demand dynamics, together with the success and agility of our model will continue to support long-term sustainable strong sales growth.”
One of the issues that Duffy did raise was supply, but in a good way for WOSG. The company has seen such demand that it is selling out all brands quite quickly and has a long waiting list of clients across its value chain and has been chasing suppliers to provide more stock.
He did raise a cautionary note on performance for the second quarter and second half of the year. “We can’t ignore what is happening in the economy and country as a whole: there is a problem in the UK at the moment with leadership and economic management.”
“That said, we don’t think that it will significantly affect the group. Only 25% of our business is dependent on [retail] footfall. Things will be slower, but our clientele is quite robust and so we’re just being prudent and cautionary by highlighting what could be a problem, but remain confident about this year,” Duffy said.
The company anticipates revenue of GBP1.45bn to GBP1.5bn in the second half of 2022, with capital expenditure in the range of GBP70m to GBP80m. It is guiding EBITDA of GBP172m to GBP184m.
WOSG opened trading at 924.5p, up from 884p the previous day. The shares have offered a year-to-date return of -35.8% and a one-year return of -10.6% ranging from 722.8p to 1,600p over 52-weeks with a market capitalisation of GBP2.1bn.
Duffy said: “…business is very good and we’re not yet seeing an impact on our consumer demand. We are being cautious about the coming year, given the macroeconomic climate, and we’re building that into our thinking. But given that we are confident about the resilience of our customers and our growth story, we’re happy to stand by the guidance we published today.”
WOSG remains confident that its customers are prepared to spend their way out of recession.
