PARIS — Swatch Group remains bullish heading into 2015 despite posting disappointing results for the year just ended, with unpredictable demand, adverse currency effects and heavy investments denting its profits.
As the industry gears up for the arrival of Apple’s smartwatch this spring, Swatch Group chief executive officer Nick Hayek said Swatch plans to launch a “new generation” of its Swatch smartwatch in the next two to three months.
Its functions will include communication, mobile payments at stores and applications that work with Windows and Android, without needing to be charged, he said.
The company’s offerings at present include the Swatch Access watch, introduced in 1995, which is fitted with a contactless chip and is used mainly as a snowpass, and the Swatch Touch, a new version of which is also in the works.
Hayek made the announcement after the Biel, Switzerland-based group reported that net profit fell 26.6 percent to 1.42 billion Swiss francs, or $1.55 billion, last year, prompting it to leave its dividend unchanged after years of regular increases.
The world’s biggest watchmaker, whose brands range from affordable Swatch watches to high-end Blancpain timepieces, said gross sales hit a record 9.22 billion francs, or $10.08 billion, an increase of 4.6 percent on the previous year.
Currency fluctuations wiped 138 million francs, or $150 million, off the total, while a fire at the ETA workshop that produces movements cost the firm another 200 million francs, or $219 million, in sales.
Net sales fell short of analysts’ estimates, totaling 8.71 billion francs, or $9.53 billion, up 3 percent year-over-year. All dollar rates are calculated at average exchange rates for the period concerned.
Group operating profits tumbled 24.3 percent to 1.75 billion francs, or $1.92 billion, reflecting an operating margin of 20.1 percent, down from 27.4 percent the previous year. The 2013 figure was boosted by a one-off payment Swatch Group received from Tiffany & Co. as settlement for their dispute over a failed watch collaboration.
Nonetheless, Swatch Group said it expects to post high-single-digit growth in local currencies and “earn continued healthy profits” in 2015. “After a strong December in Swiss francs, 2015 started very auspiciously with a strong January, of course computed in local currency,” it said.
It noted that with 20 brands and its own production and distribution network, the group was in a strong position to weather the Swiss National Bank’s surprise decision last month to de-peg the Swiss franc from the euro, a decision Hayek qualified at the time as a “tsunami.”
As reported, several of the group’s brands have decided to increase prices by 5 to 7 percent in select markets to compensate for the unfavorable currency impact.
“Marketing investments and selling expenses in foreign currencies, or companies such as Harry Winston in the USA or Rivoli in the Middle East, whose costs are also recorded in local currency, absorb part of the negative effect of the overvalued Swiss franc,” Swatch Group said.
The group increased its investments by 70 percent to 1.2 billion francs, or $1.32 billion, in 2014. This included the acquisition of new stores, including a high-profile flagship on Switzerland’s most prestigious shopping thoroughfare, Zurich’s Bahnhofstrasse.
Swatch Group also increased marketing investments in the United States, Japan and Mainland China in the second half, shaving 300 basis points off the operating margin. Omega has renewed its contract for the U.S. PGA golf tour until 2022, while Longines has increased its presence on the equestrian scene in the U.S. and Japan.
While the share price dropped 6 percent in the wake of the results announcement, it later rallied following an upbeat conference call between Hayek and analysts. Swatch Group shares closed up 2.9 percent at 398.70 francs, or $402.89.
Citi analyst Thomas Chauvet nonetheless sounded a cautious note, saying January sales were likely boosted by major retailers placing orders before the pre-announced price increases take effect. He added that Hayek’s forecast for an operating margin of 20 to 21 percent in 2015 seemed “ambitious.”
Exports of Swiss timepieces are expected to remain stable this year after progressing 1.9 percent in 2014, on par with the previous year, the Federation of the Swiss Watch Industry reported earlier this week.
Bernstein analyst Mario Ortelli deemed the results “lackluster.” He added that while the market should be more supportive in 2015, with wholesalers gradually increasing their inventories, investors want to be reassured by Swatch Group’s capacity to protect its margins and innovate with new products.
This should result in even closer scrutiny of the group’s launches at the Baselworld trade fair, which runs from March 19 to 26.