Swatch Group’s share price plumbed a new six year low today, consolidating a plunge of over 10% on Friday after it warned investors first half profits will fall by 50-60% due to year-on-year sales falling 12%.
Global exports of Swiss watches have declined for 14 out of the past 17 months, although the UK market has been the most buoyant, with total exports rising from CHF 597 million in 2010 to CHF 1163 million last year. Exports to the UK in the first five months of 2016 have hit CHF 437.6 million, putting the country on track to import over CHF 1 billion worth of watches for a second consecutive year.
Friday’s profit warning drew an angry response from investors who feel that Swatch Group’s chief executive officer Nick Hayek (pictured) has failed to keep them updated on what have turned out to be unrealistic forecasts.
Investors also believe Mr Hayek is reluctant to cut costs and adjust prices in light of the major slow down in luxury watch sales to Hong Kong and softening of sales in continental Europe.
Swatch Group’s trading statement on Friday will have done little to contradict those concerns. The statement read: “Based on net sales of the group expected to be lower of some 12% in the first half-year 2016, resulting from the decreased sales mainly in important markets like Hong Kong and partially Europe, especially France and Switzerland (while mainland China develops positively), the operating profit and the net income are expected to be lower of some 50% to 60%, obviously due to the decrease in sales but also to the tradition and the industrial long term philosophy of the Swatch Group to consider its employees not just as a cost factor but to keep them (also in spite of important cancellations of orders from third parties), to maintain investments in new products and marketing and to pursue a defensive price increase policy.”
Andrea Williams, head of European equities at Royal London Asset Management Co., whose 1.12 billion pounds ($1.5 billion) of European stocks no longer includes Swatch after she sold all her shares this year, told Bloomberg: “He rarely speaks to the market and when he does, he appears to be in denial as to how bad the watch market is. The buy-side has little confidence left in Mr. Hayek.”
Swatch Group rival Richemont Group has fared little better, with its share price falling from CHF 86 in November last year to around CHF 57 today. The company said in May that it expects a difficult first half.