Swatch Rises to Highest Since Lehman on Sales Outlook (Update2)

Aug. 14 (Bloomberg) -- Swatch Group AG, the maker of Omega and Breguet watches, led a surge by luxury-goods stocks after saying sales show “signs of recovery” after a ten-month collapse.

The Swiss company, the world’s biggest watchmaker, said today that second-half sales will match year-earlier figures as some of its biggest brands recover, and reported a smaller profit decline than analysts had estimated. Sales and operating profit in May and June improved from the first four months, and the “very positive trend” continued in July, Swatch said.

Swatch shares soared 13 percent, the most in 10 months, and erased the decline that followed the bankruptcy of Lehman Brothers Holdings Inc. almost a year ago. Lehman’s failure spooked investors into considering that watch demand from investment bankers might “evaporate,” according to John Guy, an analyst at MF Global in London.

“The Swatch numbers really have brought up the whole space,” Guy said today.

Cie. Financiere Richemont SA, the maker of Cartier watches, jumped 5.5 percent in Zurich trading. LVMH Moet Hennessy Louis Vuitton SA, the biggest luxury-goods company and the maker of TAG Heuer watches, gained 3.3 percent in Paris.

Swatch bearer shares added 26.9 francs to 237 in Zurich today. They plunged 57 percent in 2008, a year when Capgemini and Merrill Lynch & Co. research say the ranks of the world’s millionaires shrank 15 percent.

Popular Brands

Today’s second-half forecast for flat sales is better than the 4 percent average decline expected by five analysts surveyed by Bloomberg News.

First-half net income dropped to 299 million francs ($279 million) from 416 million francs, Swatch Group said. The results beat the 259 million-franc median estimate of four analysts surveyed by Bloomberg.

The company’s first-half sales fell 17 percent, a better performance than the 26 percent decline in exports from the whole Swiss watch industry. Analysts say Swatch Group benefits as retailers stock the most popular watch brands, which are seen as more recession-resistant.

“These numbers could indicate that the worst is over for the watchmakers,” wrote Rey Wium, an analyst at Nedgroup Securities.

Omega, China

Swatch Group gets about a third of its sales and almost half of its operating profit from Omega, its biggest brand, according to Nomura estimates.

Omega was the official timekeeper of the Olympic Games in Beijing last year. The next largest brands by revenue are Swatch, Tissot, Longines and Rado, Kate Woolfoot, the Nomura analyst, said in a July 30 note.

“Omega has been a very strong driver of their business,” MF Global’s Guy said. “The Beijing Games did act as a strong sales platform” for the brand, which has probably surpassed Rolex’s market share in China, he said.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.

To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net