Buoyed by a rebound in Chinese demand, Swatch Group is anticipating strong growth in 2023 after reporting a 4.6 percent uptick in sales to 7.5 billion Swiss francs, or $8.14 billion, in 2022, and a 6.3 rise in net income to 823 million Swiss francs.
The watchmaker, owner of brands including Swatch, Omega, Tissot and Harry Winston, said it is projecting growth in “all regions and segments” in the current year, bolstered by domestic and traveling Chinese consumers.
“After the end of COVID-19 measures, consumption quickly recovered, not only in China, but also in the surrounding markets of Hong Kong SAR and Macau,” Swatch said in a 2022 results update on Tuesday.
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“In addition, the lifting of travel restrictions in China will revitalize sales in tourist destinations. The sales growth in January in China reinforces the group’s expectation to aim for a record year in 2023,” Swatch said.
In 2022, sales rose 4.6 percent at constant exchange, and 2.5 percent at actual rates. The negative currency impact on sales was 151 million Swiss francs, or minus 2.1 percent.
In local currencies, and in all regions with the exception of China, sales were up 25 percent in 2022. The company saw “consistent” double-digit sales growth in Europe, America and the Middle East, while most Asian markets were “severely dampened” by the significant decline in sales in China.
Swatch said the COVID-19 lockdowns in China had resulted in sales shortfalls of more than 700 million Swiss francs in 2022, with the fourth quarter particularly impacted by the lifting of lockdowns “and the massive COVID-19 wave” that followed.
Swatch added that after restrictions were lifted, there were sales shortfalls of more than 30 percent in the final quarter of the year.
“The decline in the month of December alone was around minus 50 percent,” Swatch said of its China sales.
The company added that MoonSwatch was a bestseller last year, with more than 1 million sold across 180 Swatch stores. Demand continued to be high in January 2023, it added.
“In view of the strong position of the group brands in all segments worldwide and the robust numbers in January for mainland China, the group aims to achieve a record year in 2023,” Swatch said.
In 2022, the retail business also reported double-digit growth, not only for the Swatch brand, but also in particular for Harry Winston, Breguet and Omega.
Demand for the 11 Bioceramic MoonSwatch models remained “unbroken” in the nine months after the launch, “and queues in front of Swatch stores are still the order of the day. Despite an additional 70 points of sale and greatly increased production, daily demand still far exceeds available product,” said Swatch, adding that the entire Omega Speedmaster collection was also in high demand.
Swatch said its production sector reported “significantly higher sales and improved margins” than in the previous year. It added that difficulties in procuring certain raw materials and components hindered an even better result and led to delivery delays, despite increased safety stock. Order books at the end of 2022 were 24 percent above the previous year.
Analysts noted that the results fell short of consensus expectations, due chiefly to the disruption in China.
RBC Capital Markets said revenues were 3 percent below consensus, although “we would expect the market to ‘look through’ the full-year results and focus on the demand recovery potential in China.”
The bank added that Swatch has the highest revenue exposure to mainland China across all the companies it covers in the luxury consumer sector.
Compagnie Financière Richemont reported sales gained 5 percent during the holiday selling period, with its jewelry and fashion maisons offsetting weakness in watches and anemic consumer traffic in mainland China, then gripped by a “massive COVID-19 resurgence.”
Revenues in the three months ended Dec. 31 totaled 5.4 billion euros. Excluding the impact from Russia, group sales rose by 7 percent at constant exchange rates.
The results fell short of consensus expectations by 5 percent, according to equity analysts at Bernstein and RBC.
The 2022 growth trends at Swatch echo those of another major hard luxury group, Compagnie Financière Richemont, which earlier this month reported a sales gain of 5 percent in the fiscal third quarter.
Revenues in the three months ended Dec. 31 totaled 5.4 billion euros. Excluding the impact from Russia, group sales rose by 7 percent at constant exchange rates. The results fell short of consensus expectations by 5 percent, according to equity analysts at Bernstein and RBC.
Commenting on Swatch, Jefferies said sales fell 2 percent below its estimates, and consensus. It added that the 50 percent sales decline Swatch reported for December “was worse than our expectations.”
The bank also argued that sales of the Bioceramic MoonSwatch, which retails for 218 pounds in the U.K., doubled in 2022. It said it anticipates further “above-trend growth” for the Swatch brand this year.
“We also think the bioceramic collaboration concept could be applied to other models or brands of watch,” Jefferies said.
Swatch shares were up 1.5 percent to 56.50 Swiss francs in early-afternoon trading.