Swatch Full-Year Profit Misses Estimates as Sales Decline

  • Watchmaker plans to buy back up to 1 billion francs of shares
  • Stock declines as analyst calls revenue outlook `optimistic'

Swatch Group AG, the maker of Tissot and Omega timepieces, reported 2015 earnings that missed analyst estimates as sales declined for the first time in six years, hurt by slumping demand in Hong Kong and the strength of the franc.

Operating profit declined 17 percent to 1.45 billion Swiss francs ($1.4 billion), the owner of the Omega and Blancpain brands said in a statement Wednesday. That compares with the 1.56 billion-franc average analyst estimate. Swatch also said it plans to buy back as much as 1 billion francs of stock through February 2019. The shares fell as much as 3.8 percent.

Swatch forecast a sales increase of “well over” 5 percent in local currencies in 2016, supported by a rebound of demand in mainland China and growth in January. The outlook for the Swiss watch industry has soured after Chinese economic growth slowed to the weakest pace in more than two decades and as stock markets and oil prices tumbled. Hong Kong is the Swiss watch industry’s largest market.

The results are “clearly below expectations and we will reduce our estimates by 5 to 10 percent,” wrote Rene Weber, an analyst at Bank Vontobel. He said he considers the sales outlook “very optimistic” as he forecasts 1 percent growth.

While the strong franc eroded watch and jewelry sales in Switzerland, the euro region recorded “strong” double-digit growth rates in local currency. Japan and mainland China were also positive, the company said.

“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. “If they come through, and they do get some tailwind from currencies, then 2016 will turn out to be a better year for Swatch.”

LVMH, the maker of Hublot and TAG Heuer timepieces, said Tuesday fourth-quarter sales growth of watches and jewelry decelerated to 3 percent on an organic basis from 10 percent in the first nine months of the year. Analysts had expected 8 percent growth.

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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