Asian slowdown spoils the picture for Swatch Group

Swatch Group said business slowed in the last three months of 2018 hit by a downturn in Asia and France, leading the Swiss watchmaker to post lower-than-expected results for the full year and sending its shares seven percent lower.

“(In Asia) a downturn in demand occurred in the last three months of the year, particularly in wholesale,” the maker of Swatch watches, sporty Tissot and luxury Breguet timepieces said in a statement on Thursday.
It also pointed to a “very weak” performance in France.

Chinese tourists shopping less abroad deterred by a weak yuan, trade-war tensions and political “yellow vest” protests in France have weighed on luxury watch sales in recent months, sending Swatch’s share price sharply lower in the second half of 2018.

Its comments contrasted with an upbeat report on Tuesday from luxury goods giant LVMH, whose like-for-like sales rose 9 percent in the fourth quarter thanks to strong demand for leather and fashion goods.

The Swatch comments were more in keeping with a cautious statement from U.S. jeweler Tiffany earlier in January.

Swatch, which is behind Omega watches regularly worn by James Bond, said it had seen solid growth in January — which analysts attribute to the Chinese New Year — and was anticipating healthy growth this year despite challenging comparable figures in the first half.

“The leadership position (...) in China will become a major opportunity for the group in 2019, even if ongoing market turbulence remains disruptive,” Swatch said.

Sales rose 5.7 percent at constant currency rates to 8.48 billion Swiss francs ($8.54 billion), below a forecast for 8.65 billion francs in a Reuters poll.

“Clearly disappointing. Organic sales growth and margin declined in the second half,” Kepler Cheuvreux analyst Jon Cox said.

Vontobel’s Rene Weber said delivery bottlenecks at Omega and Longines could only partly explain the sales and margin decline and he would cut estimates by more than 10 percent.

Swatch said it expected to gain market share in the U.S. and Japan this year, but didn’t mention its high-end brands Breguet and Jaquet Droz or demand for its Tissot watches that are facing competition from smartwatches. It delayed the launch of a Tissot with its own operating system to later in 2019.

Net profit rose 14.8 percent to 867 million francs, short of a 952 million forecast, and a dividend proposal of 8 francs per bearer share was also below expectations.