PARIS — Swatch Group said net profit fell 11.3 percent in the first half and sales were down 4.4 percent, as efforts to curb gray market dealers around the world weighed on its performance.
Analysts said sales performance fell a bit below expectations, while profit figures were slightly higher than expected. Swatch shares rose 5.7 percent to trade at around 305.90 Swiss francs at 12:30 p.m. CET.
“On balance [first-half] results were weak, but this was largely anticipated by the market,” said Rogerio Fujimori, analyst with RBC.
Sales for the six-month period totaled 4.08 billion Swiss francs, or $4.13 billion, with the company noting a “marked increase in e-commerce, especially in the middle and basic segment.” Swatch cited mainland China, Japan and the U.S. as posting “very positive” growth in all price segments.
Sales in Hong Kong, the number-one market for Swiss timepieces, were impacted by political unrest, resulting in a double-digit percentage decline in sales, it noted. Unfavorable currency rates also weighed, to the tune of 0.7 percent.
Swatch Group said its crackdown on gray market dealers, in particular in Europe, the Middle East, Eastern Europe and South America, resulted in a negative impact on sales of more than 100 million Swiss francs. “In the long term, this will lead to positive effects in the major markets,” it predicted.
The group pointed to the efforts as contributing to a rise in inventories, which increased by 2.6 percent to around 7.1 billion Swiss francs. “Inventory is again on the rise and continues to be a long-term concern,” noted Luca Solca, analyst with Bernstein.
Net profit fell to 415 million Swiss francs from 468 million in the same period a year ago, as operating margins declined to 13.4 percent from 14.7 percent.
Swatch Group, which owns the Omega, Breguet and Tissot brands along with its namesake label, said it expects “positive overall annual growth.” Strong growth in the second half will come from demand in its leading markets, predicted the company, noting that the comparison base would be more favorable due to a weak fourth quarter in 2018.
The group continues to work on reducing bottlenecks in the production of cases, dials and watch hands, which it expects to continue reducing in the second half of the year.
Fujimori cited these factors, along with its depressed valuation, as likely providing near-term support for Swatch Group shares. He flagged structural challenges in the wholesale channel and a tough competitive backdrop for its low- to mid-priced labels.
Swatch said it has decreased employee numbers by around 300 people, to 36,800 at the end of June.