Swatch Sales Growth Forecast Draws Skepticism Amid Asia Slowdown

  • Watchmaker forecast sales gain `well over' 5% this year
  • Bank of America, Bank Vontobel call outlook too optimistic

Swatch Group AG reported annual profit that missed estimates and analysts questioned whether the Swiss watchmaker can meet 2016’s sales forecast amid vanishing stock market wealth and a slowdown in China.

The company predicted revenue growth of 5 percent this year excluding currency swings on Wednesday. That’s very optimistic given that retailers have too many unsold watches on hand and demand is weak, wrote Ashley Wallace, an analyst at Bank of America Merrill Lynch. Bank Vontobel analyst Rene Weber said he expects growth of 1 percent.

The outlook for the Swiss watch industry has soured. Economic growth in China, the biggest market for luxury timepieces, has slowed to the weakest pace in more than two decades and stock markets and oil prices have tumbled. LVMH, the maker of Hublot and TAG Heuer timepieces, Tuesday reported a deceleration in fourth-quarter watch and jewelry sales, trailing estimates. Retailers are trimming orders as they try to shed excess inventory, a process they call destocking.

“The big unknown is when pressure in destocking will moderate,” said Rogerio Fujimori, an analyst at RBC Capital Markets. “What Swatch is trying to say is that the sellout is not as bad as the figures they reported, and once destocking moderates, the overall figures improve. But that’s where we don’t see indicators in the market suggesting this is near the end.”

The stock traded 0.3 percent lower as of 10:41 a.m. in Zurich after previously dropping as much as 4.7 percent.

Operating profit declined 17 percent to 1.45 billion Swiss francs ($1.4 billion), the owner of the Omega and Blancpain brands said. Analysts expected 1.56 billion francs, according to the average estimate. Swatch also said it plans to buy back as much as 1 billion francs of stock through February 2019.

“It’s been a challenging year where we’ve seen a combination of factors like currencies, which had a magnified impact on Swiss luxury, as well as tourist flows,” said Alessandro Migliorini, an analyst at Mirabaud Securities LLP.

Swatch said it plans a dividend of 7.50 francs a bearer share, the second year of no increase. The Bloomberg forecast was a dividend of 8 francs a bearer share.

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