By  on August 14, 2009

Switzerland’s Swatch Group reported a 28 percent slump in first-half net profits but forecast a pick-up in demand for the second half.

The company said Friday that sales and order levels are showing signs of recovery. The world’s largest watchmaker, best known for its colorful Swatch watches, said sales in the second half of 2009 should be in line with the same period in 2008, with some key brands expected to post higher sales.

“A main growth driver in the coming months will continue to be the improving sales in most of the countries where demand should pick up with the anticipated weakening of the recession,” Swatch said.

Net profits for the six months ended June 30 dropped a less-than-expected 28 percent to 301 million Swiss francs, or $264 million at average exchange rates for the period.

Sales declined 15.3 percent to 2.48 billion Swiss francs, or $2.18 billion, reflecting a decline in demand for watches and watch components. The Biel-based company, whose brands span from handmade Breguet timepieces to Swatch brightly colored plastic watches, also manufactures movements and components for other watchmakers.

Watch sales in the period slid 16.4 percent to 1.96 billion Swiss francs, or $1.72 billion, outperforming the overall market for Swiss watch exports, which slumped 26 percent in the first six months of 2009.

Exports of Swiss timepieces have been tumbling over the past year as consumers have drastically cut spending on luxury watches and retailers have sharply reduced inventories.

Despite tough markets in the U.S., Japan and Spain, Swatch has benefited from its diversification in all price and market brackets, as low and midrange price points have held up better in the current economic downturn.

The company said the sales development in the last two to three months as well as current order entries show signs of recovery. “This positive trend has been clearly confirmed in July 2009,” Swatch said.

Looking forward, Swatch expects retailers to start reordering at normal level as the global economy begins to stabilize, with orders helped by product launches from Breguet, Tiffany and Omega’s new constellation line.

With an improving macroeconomic outlook and signs of recovery in luxury consumption in emerging markets, Swatch is well positioned against most hard-luxury peers, said Citigroup analyst Thomas Chauvet.

“Swatch’s favorable geographic and product mix, strong industrial heritage and solid balance sheet are competitive advantages,” Chauvet added.

Shares in the company have risen strongly in recent weeks as investors become more optimistic about a pickup in demand and on expectations that Swatch’s diversified business would fare better in the recession. On Friday, Swatch’s shares closed up 11.2 percent at 233.60 Swiss francs, or $217.60 at current exchange.

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