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Currency, Slow Sales Depress Swatch Net

PARIS — Currency shifts and sluggish spending dragged down Swatch Group’s first-half sales and lowered its profits.<br><br>Net income in the first half dropped 9.7 percent to $134 million. With tourism down and consumer spending sluggish,...

PARIS — Currency shifts and sluggish spending dragged down Swatch Group’s first-half sales and lowered its profits.

Net income in the first half dropped 9.7 percent to $134 million. With tourism down and consumer spending sluggish, sales for the six months ended June 30 fell 6.6 percent to $1.31 billion. Dollar figures have been converted from the Swiss franc at current exchange. In local terms, the firm reported net profits of 186 million Swiss francs in the half, and a 17.3 percent decline in operating profits to 224 million Swiss francs.

The company said second-quarter sales were off 8.9 percent.

Analysts were disappointed with the results, which were sharply below expectations. Swatch highlighted improvements in traffic and sales in its stores and jewelers in July and August, in line with other companies. But Morgan Stanley luxury analyst Claire Kent was not moved and did not raise her 2003 forecast.

In a research note, she took Swatch to task for raising prices only 2 percent on its watches this year, less than competitors such as Bulgari and Richemont. “Swatch’s inability to raise prices should be viewed as a negative when valuing the stock,” she wrote.

Antoine Belge, analyst at HSBC in Paris, also questioned Swatch’s optimistic outlook for the balance of the year. “Luxury companies’ sales trends can only improve from a very depressed level in [the second quarter] on the back of a gradual recovery in Japanese travel and feel-good factor,” he wrote. “But Swatch is the luxury company the most exposed to Europe, which in our view will be the last geographic region to recover.”

On the positive side, Swatch said upscale brands Breguet, Omega and Blancpain showed gains, but allowed that its Swatch brand was slammed in May and June by a drop in tourism and currency impacts, and that Rado, concentrated in Germany, did poorly.