With demand for watches finally showing signs of improvement, optimism is creeping back into the sector. Upcoming data and company results will be under scrutiny as the industry seeks clues about whether the recovery is sustainable — and how business will look in the future.
“This may be the time that investors turn more positive on watches short-term. In fact, sell-out of major multibrand retailers in Asia has been improving for almost a year, while Swiss exports are rebounding,” said equity analysts at Exane BNP Paribas in a research note.
The Federation of the Swiss Watch Industry in July indicated that it had amassed enough encouraging data this year to conclude that the long-running decline in business had come to an end.
The federation, which releases numbers of watch exports from Switzerland on a monthly basis and is considered a barometer for the luxury goods sector, sounded a positive note about business in Hong Kong, the most important market for sellers of timepieces.
Swatch Group chimed in with its own evidence when reporting first-half results in July, saying the company’s sales had stabilized in Hong Kong.
The world’s biggest watchmaker gave a positive outlook for the rest of the year, citing an increased rate of growth for all of its brands in June and in the first weeks of July, especially for high-end products.
Swatch Group chief executive officer Nick Hayek has been known to be excessively optimistic in the past, but analysts are ready to hear the upbeat outlook he projected last month now that there are numbers to back his view.
Caution remains after last year’s nearly 10 percent decline in Swiss watch exports, and any signs of weakness in the recovery will likely be analyzed closely in the coming months.
Swatch Group, for example, noted third-party brands were “very insecure” and delaying orders. Production sales to third parties weighed on the company’s operating margin in the first half.
In May, Compagnie Financière Richemont reported a double-digit fall in profits after a difficult year when it was forced to buy back watch inventory and lay off watchmakers in Switzerland.
Although, Richemont didn’t break out fourth-quarter sales, analysts said growth had slowed to 4 percent from the previous quarter’s 5 percent, suggesting that recovery in the watch division remains weak.
“While we like the branded jewelry business, the watch category remains challenged in our view,” said Barclays following the Richemont results.