PARIS — Swatch Group said sales fell 2.7 percent in 2019 as ongoing protests weakened business in Hong Kong, the world’s number-one market for Swiss watches, with no improvement in sight for this year.
The Biel, Switzerland-based group reported net profit fell 13.7 percent and its operating result was down 11.4 percent, below market expectations. In Hong Kong, the drop in sales in the second half of 2019 was approximately 200 million Swiss francs, or $206 million at current exchange rates, Swatch Group said on Thursday.
The world’s biggest watchmaker, whose brands range from affordable Swatch watches to high-end Blancpain timepieces, logged revenues of 8.24 billion Swiss francs last year, down 1.8 percent at constant exchange rates. Currency fluctuations had a negative impact of 76 million Swiss francs.
Swatch Group operates more than 90 retail stores in Hong Kong, where tourism has plummeted due to more than eight months of violent antigovernment protests. Excluding Hong Kong, group sales rose by 5 percent at constant exchange rates in the second half and the operating result by 6 percent, it said.
“Group management expects healthy growth in 2020 in all markets in local currency, with the exception of Hong Kong,” the company said in a statement. “The currency situation will remain challenging.”
Swatch Group said the Summer Olympic Games in Tokyo would provide a showcase for Omega in one of the world’s largest luxury markets. Luca Solca, analyst at Bernstein, noted the required communications investments would likely put a crimp on the company’s bottom line.
In addition, he predicted the coronavirus epidemic in China would put renewed pressure on the group’s sales in the first half, at a time when Swatch Group is seeing increased competition on entry-price watches from smartwatches.
“This is not counterbalanced by success in the higher end, where brands like Breguet, Blancpain or Jaquet Droz fail to shine,” Solca said in a research note.
Piral Dadhania, analyst at RBC, said while Swatch Group offers attractive exposure to China’s rising middle-class, its margins are set to shrink further. Swatch group’s operating margin amounted to 12.4 percent in 2019 versus 13.6 percent the previous year, while the net margin fell to 9.1 percent from 10.2 percent.
“Swatch Group’s full vertical industrial integration means that high-volume brands like Tissot and Swatch are crucial to drive capacity utilization and its margin recovery story. Structural challenges in high-volume brands through year-end should lead to further margin pressure,” Dadhania said.