PARIS — Despite its annual sales still being behind pre-pandemic levels, Swatch Group beat analysts consensus estimates for its 2021 profits by around 8 percent and said it expects double-digit sales gains in local currencies for the year ahead.
“The lack of sales beat could be seen as a small disappointment after the strong results delivered by peers; however, this is a good set of results for Swatch and we think the results will be well received by the market,” wrote Barclays analyst Carole Madjo in a research note.
The Swiss watchmaker reported a significant improvement in the operating margin of its core watches and jewelry activity for 2021, at 17.7 percent, compared with 15.2 percent in 2019.
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The maker of Longines, Blancpain, Harry Winston, Tissot and Omega timepieces reported operating profit of 1.02 billion Swiss francs, or $1.12 billion, compared with 52 million Swiss francs, or $56.9 million, in 2020.
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Net income stood at 774 million Swiss francs, or $847.3 million, compared with a net loss of 53 million Swiss francs, or $58 million.
Total sales gained 30.7 percent last year, to reach 7.31 billion Swiss francs, or $8 billion at current exchange. At constant currency rates, revenues were up 29.6 percent.
In the core watches and jewelry business, full-year sales gained 31.4 percent to 7.01 billion Swiss francs, or $7.67 billion, with brands at all price points contributing to growth, the company said. At constant currency, sales declined 7.4 percent compared with 2019. Nevertheless, the company said sales had exceeded 2019 levels in the final quarter of the year.
By way of comparison, Compagnie Financière Richemont’s specialist watchmaking arm saw sales grow 29 percent on a reported basis in the three months to December on the prior-year period, reaching 977 million euros, which was a 19 percent gain on the same quarter in 2019.
But Swatch Group, unlike Richemont, operates across price categories. “Swatch Group’s high-end watch brands are performing well, however, it continues to face structural headwinds for its entry and mid-price watches, which face increasing competition from smartwatches, and shrinking wholesale distribution channels,” said RBC analyst Piral Dadhania.
Swatch said the lack of international travel last year meant a shift to domestic consumption, with “historical record sales levels” in mainland China and the U.S., the company said.
Improved efficiencies in the company’s own retail network were also a sales driver. While reducing its store footprint by 22 percent — a total of 172 stores — Swatch said it achieved comparable sales levels with 2019 there. Some 55 new stores in prime retail locations were added to the network, meanwhile, and e-commerce also contributed to gains.
For 2022, Swatch said Tuesday that it anticipates double-digit sales gains in local currencies this year. “This will be ensured by numerous, and in some cases, spectacular new products from the brands in all segments,” the group stated. “Omega, as timekeeper for the Olympic Winter Games in Beijing, will be present worldwide in the media in February, and in September, Tissot, as timekeeper for the Asian Games in Hangzhou, will be visible far beyond the Chinese market.”
Swatch updated analysts on current trading Tuesday afternoon, saying sales in January had been up in the double digits and that it is seeing no signs of a slowdown in China, according to Madjo.
Other analysts warned on Swatch’s exposure to China. “Swatch Group has the highest direct exposure to the Chinese consumer (55%) across our coverage — and we believe the Chinese macroeconomic and consumer backdrop is moderating owing to zero tolerance COVID-19 policies, declining property values and lowering consumer confidence,” Dadhania said.
Swatch Group’s share dropped 3.87 percent on the Swiss stock market on Tuesday, closing at 278.5 Swiss francs, or $304.88.
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