PARIS — Swatch Group flagged a decline in December business and delivery delays at Omega and Longines as it reported a 6.1 percent increase in annual sales.
The group said January has started with “solid growth” compared to a strong January last year, and projected healthy growth for 2019.
“Demand is good and production problems and bottlenecks, particularly in the Habillage sector, will be resolved in the first semester,” the company predicted, referring to its cases, dials and watch hands business. The company noted delivery delays, especially at Omega and Longines, with production lines working at or above capacity.
Sales for the period totaled 8.48 billion Swiss francs, or $8.54 billion, a 5.7 percent rise at constant rates, with the company noting high growth rates in Asia. Demand declined in the last three months of the year, especially in the wholesale channel, it said.
The growth rate implies a “worst-than-feared” slowdown in the second half of the year, said Rogerio Fujimori, an analyst with RBC Europe. While weakening trends in the fourth quarter should not come as a big surprise, given the “parade of negative data points” from hard luxury players in Asia in recent months and Swiss watch exports, the figures were “weaker than reduced expectations” and contrasted with solid numbers from LVMH Moët Hennessy Louis Vuitton and Compagnie Financière Richemont, added Fujimori.
Earlier this week, the Federation of the Swiss Watch Industry reported a 2.8 percent decline in December Swiss watch exports as demand from China weakened.
Swatch noted a positive development in sales in North America over the last three months of the year, while business in Europe was mixed with increases in the U.K. and Switzerland, while it weakened in France, for “unknown reasons.”
The company’s posted a 15 percent increase compared to last year for its operating result, which came to 1.15 billion Swiss francs, as well as net income, which was 867 million Swiss francs. Swatch did not provide a breakdown of the figures by region or quarter.
Swatch flagged Blancpain as ending the year with record sales, noting it appeals to Milleniums and expects strong growth again next year.
The company’s mention of Blancpain, Omega and Longines likely implied that mid- and lo-price segments were weak, noted Christian Weiz, analyst with Baader Helvea. Given a slump in exports of lower priced Swiss timepieces, “it is not a surprise that the middle price segment of Swatch’s watch offering seems to have been hit,” added Weiz, in a research note.
The Swiss watch sector, particularly demand for lower-priced timepieces, has taken a hit from competition from the Apple Watch.
Swatch said it will maintain high marketing expenses despite weakened sales in the fourth quarter. It sees China as a “major opportunity” for the group in the coming year even if “ongoing market turbulence remains disruptive.” It is also targeting market share gains in Japan and the U.S.