The first half results show that luxury companies continue to perform well. The situation for watch brands is slightly more complicated, especially in mainland China and Hong Kong.
2019 is over half. According to the convention, we will review the performance of watchmaking brands in the first half of the year and look forward to their prospects in the second half of the year. Of course, the best way is to look at the financial reports of industry entities. In July, the Swatch Group and Richemont released their results for the first half of 2019 and the first quarter of 2019/20 respectively, giving mixed data. In the first half of this year, the Swatch Group’s net sales fell 4.4% year-on-year to 4.1 billion Swiss francs, and operating profit fell 13.0% year-on-year to 547 million Swiss francs. The group issued an important signal and has launched actions against the grey market. This move led to an increase of 2.6% to 7.1 billion Swiss francs compared to the beginning of the year, inevitably affecting profitability. According to the report, ‘In the first half of 2019, the Group did not hesitate to sacrifice hundreds of millions of Swiss francs in sales and bear the short-term negative effects of this.
The gray market is booming due to the accumulation of unsold inventory in the distribution network, especially among the Swatch Group brands in Mainland China. Two years ago, Richemont’s response to the same issue was a cleanup operation, which cost the group about 500 million euros in two fiscal years. In the first quarter of 2019/20, Richemont Group sales increased 12% year-on-year to 3.7 billion euros. Excluding online distribution of YooxNet-A-Porter and Watchfinder, actual sales increased by 6%. The main driver of the growth came from the jewellery brands Cartier and Van Cleef & Arpels, while sales in the professional watchmaking division fell 2% year-on-year. Nevertheless, Richemont is still a favorite of investors. In the first seven months of this year, Richemont’s share price on the Swiss Stock Exchange surged 36.3%, while Swatch Group’s stock price remained stable (+ 1.7%).
Slower growth in Asia
Investors are also paying close attention to the luxury group stock price index in French CAC40. As the first half of the financial report shows, the French luxury giant continues to sing. Kering’s revenue increased by 18.8% year-on-year to 7.6 billion euros, and operating profit reached 2.2 billion euros (+ 25.3%), of which Gucci’s operating margin was more than 40%! Hermès revenues increased by 15% year-on-year to 3.3 billion euros, while LVMH Group revenues reached 25.1 billion euros. The watch business of these multinational companies has performed strongly. The Hermès watch business has grown by 14%, thanks in part to the warm welcome of the new Galopd’Hermès collection. Revenue from the watch and jewellery business of the Corofin Group increased by 8% year-on-year to 2.1 billion euros, and profit from continuing operations increased by 5% to 357 million euros, mainly due to the outstanding performance of BVLGARI Exciting news is also reflected in the stock prices of the two groups. From January 1, 2019 to July 31, 2019, the stock prices of Hermès and Colosseum rose by 31.4% and 44.7%, respectively.
For watch brands, the biggest uncertainties in the coming months lie in Mainland China and Hong Kong. Export data show that in the first half of 2019, Swiss watch shipments to Hong Kong, China fell by 6.6% year-on-year, of which in June it plummeted by 26.8%. Also in June, Swiss watch exports to the Chinese mainland weakened for the first time (+ 1.3%), confirming the slowing trend predicted by some observers a few months ago. The Swiss Watch Industry Federation (FH) is more inclined to believe that the situation is developing in a good direction, and it is expected that positive growth will be achieved throughout 2019 (the export value in the first half of 2019 will increase by 1.4% year-on-year). However, the association did notice ‘the complex environment created by competition and changing consumer behavior, which is a permanent challenge for the watchmaking industry.’ If the Asian dragon sneezes, Swiss watchmakers will catch a cold. (Photo / text watch home compiled by Xu Chaoyang)