Watches of Switzerland Posts Strong H1 Despite Supply Woes

London—Watches of Switzerland delivered a strong first half, raising its full-year guidance as it continues its North American expansion.

In the second quarter ending Oct. 31, the company posted £288.7 million ($381.8 million) in total revenue, up 12 percent year-over-year in constant currency.

Revenue was up 36 percent compared with the second quarter of pre-pandemic fiscal 2020.

For the first half of the year, revenue totaled £586.2 million ($775.1 million), up 45 percent year-over-year and 41 percent compared with pre-pandemic fiscal 2020.

The positive performance was driven by strong demand for luxury watches and jewelry, said the company, with growth led by a significant increase in volumes of brands not hampered by supply constraints.

These “supply-constrained brands” include Rolex, Patek Philippe, and Audemars Piguet.

Due to a recent Rolex shortage, the company changed its in-store stock to being demonstration stock, CEO Brian Duffy said during a November call about the second quarter results.

“We present it as being for exhibition only, and we're doing that simply to keep a reasonable representation of the brand in store overall, not selling that stock, but customers are able to see the product, try it on, and register their interest in buying when availability is there,” he said.

Duffy said this system is “likely to remain for the indefinite future.”

The company has had to rely less on in-demand brands this year to boost its bottom line, Duffy said during a first-half earnings call last week.

The supply-challenged brands contributed less to total revenue this year—59 percent in the first half of this year compared with 61 percent in the same period last year.

“The other luxury watch segment, where we have less constraint on supply, enjoyed very strong sales growth in both the U.K. and the U.S.,” he said. 

These brands contributed 28 percent this year compared with 25 percent last year.

Duffy highlighted Omega, Breitling, Cartier, TAG Heuer, and Tudor as brands who put on strong performances.

The company also couldn’t count on tourist dollars this year as travel remains slow to recover.

Tourist sales made up 34 percent of overall revenue in the first half of 2020. So far this year, tourist sales accounted for 2 percent of overall sales.

In a move to bolster revenue, the company has continued to expand in the U.S. market.

In the region, second-quarter revenue totaled 196.9 million, up 6 percent year-over-year and up 21 percent compared with the second quarter of pre-pandemic fiscal 2020.

For the first-half, U.S. revenue totaled 167.6 million, up 50 percent year-over-year and up 67 percent compared to the same period in fiscal 2020.

The company recently acquired five stores belonging to leading independent watch retailers in the U.S. as it continues its North American expansion.

It scooped up Ben Bridge at Mall of America outside of Minneapolis-St.Paul; Timeless Luxury Watches in Plano, Texas; and three Betteridge stores in Greenwich, Connecticut, and Vail and Aspen, Colorado.

As part of the expansion plan, the Ben Bridge and Timeless locations will be converted into Watches of Switzerland boutiques, while the acquired Betteridge locations will continue to operate under their own name for the “immediate future.”

The acquisitions brought its U.S. network up to 36 stores, including 22 multi-brand and 14 mono-brand boutiques, located in 12 states.

It also invested in its U.K. store network, including refurbishing five stores and adding seven stores, bringing its total to 130 as of Oct. 31.

"I am delighted with our excellent first-half year performance,” said Duffy in a press release about the results.

“Our success in both the U.K. and the U.S. has been a testament to our robust multichannel business model, the enthusiasm and commitment of our people, and the attractive dynamics of our category where demand continues to outpace supply.”

The luxury watches category climbed in the second quarter, up 8 percent year-over-year. For the first half, the category was up 41 percent.

The luxury jewelry category was up 25 percent year-over-year and up 53 percent in the first half.

“Our jewelry business is up 50 percent, so it was a good market for jewelry,” said Duffy.

“Our buying team is doing a fantastic job and selecting the right product and approach to the market, which is a branded approach,” he added, noting the company avoids promotional activity in the category.

Online sales for the first half were strong, up 29 percent year-over-year. Its physical stores were fully opened in the first half.

Due to a strong first-performance overall, the company raised its full-year guidance.

It now expects revenue of £1.15 billion to £1.20 billion, said Chief Financial Officer Anders Romberg, up from its prior guidance of £1.05 billion to £1.10 billion.

The guidance assumes there will be no disruptions to the supply chain or additional COVID-19-related lockdowns.