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Watches of Switzerland clocks record sales

In the midst of a challenging retail environment, the company looks to be well positioned
Watches of Switzerland clocks record sales
  • "Unique" supply and demand dynamics
  • US sales up by a half

There just aren’t enough Rolex, Patek Philippe, and Audemars Piguet watches to go around. Sales ticked significantly higher at Watches of Switzerland (WOSG) as the demand for luxury watches continues to outstrip supply and progress was made across markets, with notable growth in the US.

The retailer surpassed £1bn in sales for the first time in the year to 1 May, with luxury watch sales up by a third and luxury jewellery sales climbing by 86 per cent. The average selling price rose across all brands, product waitlists have gotten longer, and ecommerce sales were up 128 per cent on a two-year basis. Although unspectacular, the gross margin edged up 130 basis points to 14.6 per cent.

For now, the UK remains Watches’ biggest market although management expects the US to reach parity in the medium term. UK sales rose by 36 per cent to £810mn as investment in the showroom network and 12 new mono-brand boutiques paid off. European expansion is also something to watch, with a boutique opened in Stockholm in June and five more planned across the continent.

We have previously flagged the major opportunities on offer for the company in the US. The American market is relatively fragmented and consolidation offers significant growth potential. US sales were up by 48 per cent to £428mn in these results, and a growing number of showrooms and boutiques, combined with “significant year-on-year growth” in ecommerce, suggests a favourable direction of travel.

The company forecasts revenue of around £1.5bn for financial year 2023. This would represent a lower level of growth than seen here, but would still be an uplift of around a fifth and looks robust given the general retail and consumer confidence outlook. Planned capex of £70mn to £80mn, meanwhile, displays management’s desire to invest for growth. While the trading outlook looks positive, the company did note that although airport showroom traffic is improving post-pandemic, "we do not believe conversion at the airports will achieve pre-Brexit levels". 

Investec analysts said that “there is material upside to valuation, in our view, given long-term growth opportunities and potential for further acquisitions as the US and European markets consolidate”. The shares trade at 13 times the broker’s forward 2023 earnings, which looks undemanding given the growth potential on offer. The valuation doesn’t look as expensive as it once did, and is cheaper than the forward consensus ratings for luxury peers such as LVMH Moët Hennessy Louis Vuitton (FR:MC) and Burberry (BRBY). Buy.

Last IC View: Buy, 825p, 12 May 2022

WATCHES OF SWITZERLAND (WOSG)  
ORD PRICE:797pMARKET VALUE:£1.91bn
TOUCH:797p-800p12-MONTH HIGH:1,600pLOW: 735p
DIVIDEND YIELD:NILPE RATIO:19
NET ASSET VALUE:151p*NET DEBT:98%
Year to 01 MayTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
2018**0.637.200.40nil
20190.7720.17.60nil
20200.811.490.20nil
20210.9163.721.1nil
20221.2412642.2nil
% change+37+98+100-
Ex-div:-   
Payment:-   
*Includes intangible assets of £178mn, or 74p a share **Pre-IPO