COVID-19-related disruption in China may have dented sales growth at Swatch, and overall Swiss watch exports last year, but the impact will fleeting.
Although Swatch Group was heavily impacted by losses in China in the fourth quarter, and its full-year sales were below analysts’ consensus estimates, it is looking forward to a record-breaking 2023, fueled by a rebound in China.
And while the export growth of Swiss timepieces may have slowed in December, 2022 remained a record year for Swiss watches abroad.
Swatch said that in 2022, sales rose 4.6 percent at constant exchange and 2.5 percent at actual rates. In local currencies, and in all regions except for China, sales were up 25 percent in 2022.
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Sales for the year were 7.5 billion Swiss francs, or $8.14 billion. Net income was up 6.3 percent to 823 million Swiss francs, or $821.8 million.
The company saw “consistent” double-digit sales growth in Europe, America and the Middle East, while most Asian markets were “severely dampened” by the significant decline in sales in China.
Buoyed by a rebound in Chinese demand, Swatch Group is anticipating strong growth in the year ahead. “In view of the strong position of the group brands in all segments worldwide and the robust numbers in January for mainland China, the group aims to achieve a record year in 2023,” Swatch said.
The owner of brands including Swatch, Omega, Tissot and Harry Winston, said it is projecting growth in “all regions and segments,” bolstered by domestic and traveling Chinese consumers.
“After the end of COVID-19 measures, consumption quickly recovered, not only in China, but also in the surrounding markets of Hong Kong SAR and Macau,” Swatch said Tuesday.
“In addition, the lifting of travel restrictions in China will revitalize sales in tourist destinations. The sales growth in January in China reinforces the group’s expectation to aim for a record year in 2023,” Swatch added.
COVID-19 lockdowns in China resulted in sales shortfalls of more than 700 million Swiss francs, or $699 million, in 2022, with the fourth quarter particularly impacted by the lifting of lockdowns “and the massive COVID-19 wave” that followed.
Swatch added that after restrictions were lifted, there were sales shortfalls of more than 30 percent in the final quarter of the year.
“The decline in the month of December alone was around minus 50 percent,” Swatch said of its China sales.
RBC Capital Markets said revenues were 3 percent below consensus, although “we would expect the market to ‘look through’ the full-year results and focus on the demand recovery potential in China.”
The bank added that Swatch has the highest revenue exposure to mainland China across all the companies it covers in the luxury consumer sector.
Jefferies said the 50 percent sales decline Swatch reported for December “was worse than our expectations.”
Swatch saw double-digit growth in its retail business for Harry Winston, Breguet and Omega last year, it said. The MoonSwatch was a bestseller last year, with more than 1 million sold across 180 Swatch stores. Demand continued to be high in January 2023, it added.
Swatch shares rose 5.06 percent to close at 321.90 Swiss francs, or $321.44.
The lifting of lockdown in China also stung Swiss watch exports in December.
After remaining on a double-digit growth track through the first 11 months of the year — gains came in at 10.9 percent in November — exports of Swiss watches rose just 5.8 percent last month to 2.02 billion Swiss francs, or $2.19 billion at current exchange.
In unit terms, exports of Swiss wrist watches declined 12.9 percent, to 1.3 million, due to a drop in exports of steel timepieces, which were down 27.5 percent in volume.
Barclays analyst Carole Madjo said in a research note that the overall Swiss export data “remains solid in our view, albeit growing at a normalizing pace, and closes out a strong 2022. The continued growth across key markets such as the U.S. and U.K. is a positive read-across for the hard luxury space despite pressure on Chinese demand, which was to be expected.”
According to the Federation of the Swiss Watch Industry’s data, exports of Swiss timepieces to China dropped 22.5 percent to 178.4 million Swiss francs, or $193.8 million, in December. Exports to Hong Kong were down 19.8 percent.
The U.S. — the biggest market for Swiss timepieces abroad — continued to be strong, with exports up 11.5 percent to 310.4 million Swiss francs, or $337.2 million, in the final month of the year, and exports to Singapore, Japan and European markets also all saw strong gains, despite the shadow of rising inflation in Europe.
For 2022 exports reached 24.8 billion Swiss francs, or $26.9 billion, a year-on-year increase of 11.4 percent. Volumes for the year were roughly stable, at plus 0.3 percent.
In December, the strongest growth came from watches made from precious metals, up 14.3 percent in value terms, to 751 million Swiss francs, or $815.9 million; other metals, up 19.8 percent to 130.1 million Swiss francs, or $141.35 million, and other materials, up 47 percent to 83.7 million Swiss francs, or $90.9 million.
Watches priced at more than 3,000 Swiss francs, or $3,259, were up 13.3 percent, and were the main driver of value gains, pointing to a polarization of the market that has been seen in several companies’ recent results.