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Swatch Foresees Strong End to Year After Slow First Half

Swatch Group AG (UHR), the maker of $50 colorful namesake watches as well as $5,000 Omega timepieces, forecast a strong end to the year after first-half profit growth slowed by a smaller margin than analysts’ predicted.

Net income increased 6.1 percent to 768 million Swiss francs ($820 million), the Biel, Switzerland-based company said today in a statement. That beat the 747 million-franc average of five estimates compiled by Bloomberg. Profit rose 27 percent in the second half of 2012.

Swatch rose as much as 3.6 percent in Zurich trading, the most since April 23. The earnings provided relief for investors amid slowing growth in China, where analysts expect a government clampdown on corruption and extravagant spending among officials to weigh on sales of luxury goods this year.

“The result is solid enough,” said Jon Cox, an analyst at Kepler Cheuvreux in Zurich. “It’s clearly winning share in the watch market. The outlook is upbeat.”

The shares rose 2.3 percent to 541.5 francs at 9:18 a.m., the steepest gain in the benchmark Swiss Market Index. (SMI)

Swatch’s first-half gross revenue rose 8.7 percent to 4.18 billion francs, the maker of Tissot T-Touch diving watches said. Operating profit increased 0.8 percent to 910 million francs.

Growth in China is a concern for watchmakers as buyers there purchase more than a quarter of Switzerland’s production, making it the largest market for the past five years.

CEO’s Stance

Shipments of Swiss watches to greater China fell 13 percent in the first half of the year, according to the Federation of the Swiss Watch Industry. Swatch is expanding in markets outside of Asia such as the U.S. to offset the risk of depending too much on that region, Chairwoman Nayla Hayek said at the annual shareholders meeting on May 29.

The low- and mid-range segments of the Chinese market yield the most opportunity, Chief Executive Officer Nick Hayek said April 25. On Jan. 30, he forecast that mainland China’s watch market will expand about 10 percent in 2013. He also said at the time that he sees no reason for the Swiss watch industry not to have “healthy” growth this year.

Swatch Group bought watch and jewelry brand Harry Winston for about $1 billion in March. The company said today it expects a “significant” contribution from the acquisition.

“This brand has huge, almost untapped, market potential in the high-jewelry and watches activities,” the company said.

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

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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