Currency swings have taken a bite out of the main groups’ results. The situation should improve slightly in the second half-year, although growth will remain slim.
With the exception of Swatch Group, Rolex Replica watchmakers delivered a mixed bag of results for the first half-year, with groups underperforming on market expectations despite continued growth. Looking beyond the counter-productive short-term trend relayed on the stock exchange, the branch nonetheless remains on an upward trajectory. Which in the current climate can only reassure: the promised rebound in the European economy is slow in coming, growth in the emerging economies is contracting and, into the bargain, exchange rates are weighing heavily on results. In certain cases, positive figures at constant exchange rates become negative at actual exchange rates, resulting in an adverse effect on operating profit.
Swiss Replica Watches Group, the sector’s biggest player, reported gross sales up 8.5% to CHF 4.535 billion although the negative exchange rate impact reduced this figure to 4%. The group continues to gain market share, with sales progressing by more than 10% at constant exchange rates in the Watches & Jewellery segment. This compares well with the 3% increase in total Swiss watch exports recorded for the same period. Despite these unfavourable exchange rates, and disruption caused by the fire at the ETA factory in December 2013, Swatch Group has its sights on the long term and created 800 new jobs worldwide over the first six months of the year, of which 460 in Switzerland. Ultimately though, the group didn’t emerge totally unscathed with operating profit losing 8.8% on the previous year, at CHF 830 million. Operating margin came to 20.2%, which is still one of the best in the sector.
Disappointing results from LVMH
LVMH, the world’s leading luxury conglomerate, recorded frankly disappointing results. Its Watches & Jewelry business group, which includes TAG Heuer, Hublot and Zenith, significantly underwhelmed. The French luxury behemoth puts this counter-performance down to “sustained investment in communication” and a negative exchange rate effect; which doesn’t entirely explain the 1% drop in sales to EUR 1.226 billion. The group admits that the uncertain economic climate has continued to encourage prudent purchasing among multibrand retailers. At constant exchange rates, revenues within this business group progressed by 3%, three times less than at Swatch Group. Analysts see the 31% nose-dive in Breitling Replica Watches & Jewelry profitability as a cause for concern; LVMH considers currency fluctuations to be chiefly responsible for this decrease in profit from recurring operations, which stood at EUR 107 million.
Watch revenues at Hermès, which fell by 7%, were penalised by wholesale sales in a still difficult market, notably in China where the campaign to curb corruption among officials continues to affect watch sales. Hermès is the only luxury name to brandish this argument. Analysts took critical note of the deterioration in performance over the second quarter. Whereas sales remained virtually stable during the first three months of the year (-0.1%), the drop in activity was significantly greater for April to June (-12%).
Kering creates a new division
Kering (formerly PPR), which recently acquired Ulysse Nardin, does not publish detailed, consolidated figures for its Replica Watches division, which also boasts Girard Perregaux, JeanRichard and Gucci. What is known is that Kering’s luxury business posted revenue growth of 5.7%, based on comparable data, in the first-half 2014, boosted by a solid performance from directly-operated stores in all geographic areas. According to the multinational, its watches and jewellery business experienced a positive trend, although no further details were made known. Note that Kering has just created a Luxury – Watches & Jewellery division that reports to Group Chairman and CEO François-Henri Pinault, with Albert Bensoussan as CEO. Whether it will be more forthcoming with information is anyone’s guess.
As for Richemont, the group will publish five-month figures to end August this September 17th. For its 2013-2014 financial year, ended March 31st, Richemont increased its net profit by 3% to EUR 2.067 billion. Over this period, sales climbed 5% at actual exchange rates to EUR 10.6 billion. At constant exchange rates, they grew by 10%. Operating profit of EUR 2.42 billion is comparable to the previous year, although operating margin fell to 22.7% versus 23.9% one year earlier, entirely due to a negative currency environment according to the group, whose brands include Cartier, IWC, Panerai, Jaeger-LeCoultre and Vacheron Constantin.
Lower growth forecasts
On the other side of the Atlantic, Movado Group publishes its half-year results on August 26th. In an interview to Swiss daily Le Temps this spring, the group’s CEO said he expected sales to grow by more than 10% this year, to around USD 640 million. This is a realistic forecast and should lead to sales in the region of USD 750 million by 2017.
The other Replica Watches For Sale groups have refrained from giving such precise forecasts, the prerogative of US listed companies. Swatch Group is keeping a positive outlook for the second half-year, with a more favourable comparison basis for exchange rates and production delays at ETA showing signs of easing since July. LVMH is similarly vague in its forecasts: “Despite an uncertain European economic environment, LVMH will continue to gain market share thanks to the numerous product launches planned before the end of the year and its geographic expansion in promising markets, while continuing to manage costs.” Kering, too, is staying tight-lipped. Analysts have already lowered their forecasts and now point to growth of between 1% and 5% for the year as a whole. Nick Hayek, Swatch Group CEO, goes further: “It’s an illusion to think double-digit revenue growth can be reached with this currency situation. If the situation remains the way it is, you can forget about double-digit revenue growth at actual rates for anyone in the Swiss Omega Replica watch industry.”