Swatch's first-half net profit misses expectations despite sales growth

Swatch Group reported a net profit for the first half that was below expectations on Tuesday. The company hopes for “a significant improvement in profitability in the second half” thanks to an acceleration in sales observed since May.

For the period from January to June, the Swiss watchmaker reported a net profit of 16 million Swiss francs. This represents a decrease of 5.8 percent compared to the first half of last year. However, the company unveiled a better-than-expected turnover, up 2 percent to 3.1 billion francs, it stated in a press release.

Excluding currency effects, its sales increased by 8.5 percent, it added.

By comparison, analysts surveyed by the Swiss agency AWP had expected an average profit of 95 million on a turnover of three billion francs.

Profit weighed down by production despite solid sales

The group owns several watch brands, including Tissot, Longines and Omega, and also sells watch components like dials and hands. It attributed the decline in its profit to its production activities. The company also highlighted the “robust momentum” of its watch brand sales across “all price segments”.

“The acceleration seen in May and June, and confirmed in July, allows for better utilisation of production capacity and will lead to a significant improvement in profitability in the second half,” it affirmed in the press release.

In May, its Swatch brand generated significant buzz with its Royal Pop model, a watch created in partnership with the prestigious brand Audemars Piguet. This led to long queues outside its boutiques. The situation escalated to the point that police intervention was required to disperse crowds in front of around 20 stores.

Growth driven by US and China

During the half-year, its watch and jewellery sales climbed by 27 percent in the US, the group detailed. In China, Hong Kong and Macao, a key market for the Swiss group, sales grew by 9 percent in its own boutiques. Restocking orders from third-party retailers “remained modest, however,” it specified.