(Bloomberg) — Swatch Group Inc.’s shares fell to their biggest drop in four years as sales and profits plummeted as Swiss watchmakers and other luxury goods makers grapple with a China-led economic slowdown.
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The group, whose brands include Omega, Blancpain and jewellery retailer Harry Winston, reported a 70% fall in operating profit and a 14% drop in sales in the first half of the year.
Swatch Group shares fell 10% in early morning trading in Zurich, their biggest drop since March 2020.
The results underscore a slump in luxury demand in China as consumers in key markets cut back on big-ticket purchases. Swatch Group Chief Executive Officer Nick Hayek said in an interview that the company has cut production by more than 20% while keeping its staff on board to weather the downturn.
“The big impact is mainly in China,” he said.
Hayek said he expects the Chinese market, including Hong Kong and Macau, to remain tough for the overall luxury industry through the end of the year. Entry-level brands such as Swatch and Tissot will likely fare better than higher-end brands such as Omega, Blancpain and Breguet, he said.
RBC analyst Pilar Dadania said Swatch Group’s results were worse than expected and he expected a “significant earnings downward revision.”
Bernstein analyst Luca Solca called the report “very bad” and said the company’s flagship brand, Omega, could be hurt by greater availability of models at retailers from rival Rolex, the top Swiss watch brand.
Like other luxury watchmakers, Swatch has been under pressure since soaring inflation since the pandemic led consumers to cut back on spending, hitting less affluent buyers the hardest, hurting sales of entry-level and mid-range models.
The company, run by Switzerland’s Hayek family, has also clashed with some shareholders who have criticized corporate governance and the performance of its stock price, which has fallen about 17% in 2024.
Hayek said he is keeping employees employed to avoid the “short-term thinking” common at many public companies in case the market recovers, otherwise he said he would have cut his workforce by more than 30%.
(Adds share price reaction in first paragraph, analyst comment in eighth paragraph)
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