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Swatch Profits Fall, Firm Looks to 2010

Swatch Group said it just recorded its second-best month of January in terms of sales, and that the outlook for the rest of 2010 was “excellent.”

Switzerland’s Swatch Group said it just recorded its second-best month of January in terms of sales, and that the outlook for the rest of 2010 was “excellent.”

The word from the world’s largest watchmaker, which also reported net profits fell 8.9 percent in 2009, added to recent evidence the watch sector is nearing a turnaround after seeing demand wilt during the recession.

Swatch, whose brands range from handmade Breguet timepieces to brightly colored plastic Swatch watches, posted net profits of 763 million Swiss francs, or $705 million, last year. The net margin remained unchanged versus 2008 at 14.8 percent. All dollar figures are calculated at average exchange rates for the period concerned.

The Biel-based company reported last month that sales, excluding the 2008 divestments of Sokymat and Michel, fell 8.1 percent in 2009. This compares with an overall 22.3 percent drop in Swiss watch exports during the same period, according to the Federation of the Swiss Watch Industry.

Swatch said it was “very confident” of recording further organic sales growth and improved margins in 2010.

“The main reasons for this positive outlook are the excellent start in 2010, increasing order entries as well as the improving economic environment and market confidence worldwide,” the company said.

Operating profit fell 24.9 percent to 903 million Swiss francs, or $834 million, from 1.2 billion Swiss francs, or $1.11 billion, in 2008.

The group’s operating margin fell to 17.6 percent in 2009 from 21.2 percent the previous year, but showed signs of improvement in the second half. “Taking into account that foreign currencies as well as the gold price, an important raw material for the group’s watches, did not develop in our favor, this represents a very positive achievement,” Swatch noted.

The figures come on the heels of positive results from other luxury goods firms such as Burberry, Hermès and Richemont. Analysts Bernstein Research said the operating profits of luxury goods companies should see an improvement more marked than the one recorded in the early and mid-Aughts. It cited cost-cutting efforts, the weakening euro and a restrained approach to mergers and acquisitions as positive factors.

In the medium-term, however, prospects for the sector are more subdued than in the past decade, as high debt — both public and private — was expected to lead to slower output growth. “There is a risk of hiccups between a likely short-term rebound and a more subdued medium-term growth prospect,” Bernstein said in a report published Tuesday.