LONDON — Net income at Swatch Group sank 52 percent to 263 million Swiss francs, or $268.3 million, in the first half following a double-digit drop in sales, although the company says better times lie ahead with full-year results set to be broadly in line with the previous period.
Last Friday, Swatch published a sales and profit warning, blaming the performance in Hong Kong — where retail and wholesale sales continue to — and uneven European markets.
Group net sales were down 11.4 percent in reported terms and 12.5 percent at constant exchange rates to 3.72 billion Swiss francs, or $3.79 billion. Watches and jewelry, which make up the bulk of group sales, saw a decline of 11.3 percent at reported rates and 12.4 percent at constant ones.
All figures have been converted at average exchange rates for the six months to June 30.
The company called its sales performance “a respectable result” in the given environment.
In mid-morning trading on Thursday, the shares were up 3.7 percent to 53.10 Swiss francs, or $53.63.
“Unfortunately, worldwide turbulence did not decrease in the first half of 2016, characterized to no small extent by the unexpected Brexit decision on June 24,” the company said Wednesday. It also pointed to the strongly overvalued Swiss franc, which has forced the group to raise the prices of its higher-end collections.
Swatch said it booked added costs — in the double-digit millions — due to preparations ahead of the Olympic Games in Rio de Janeiro. Its Omega brand will be the official timekeeper of the Summer Games, and Swatch characterized the preparations as “extremely difficult and costly.”
Among the top performers in the period was Harry Winston, which increased net sales in high jewelry, thanks to its 36-strong retail network. By region, sales in mainland China stabilized in the first half, while Swatch believes the Hong Kong downturn has finally “bottomed out.”
“Wholesale still remains at a low level [in Hong Kong] as local distributors are very uneasy and do not reorder, hence reducing the product range and therefore setting a too heavy restriction on customers’ choice,” the company said.
Growth is set to pick up in the second half in local currency terms, with year-end results “closer or equivalent to” the previous year, Swatch said.
The company’s outlook for Europe is mixed for the second half, with Italy, Spain and Great Britain set to grow in local currency terms, while France and Belgium will remain “difficult” due to the terrorist attacks.
Mainland China is also set to grow, although third-party distributors in Hong Kong remain “uneasy” and will cause further delays in reorders. In North America and Japan, growth in local currency will be achievable, the company said.