Swatch Group’s Profits Tank By 70% : A Steep Fall In The First Half Of 2024

The Swatch Group is facing a challenging situation, experiencing a 14.3% drop in sales in the first half of 2024 (10.7% when adjusted for constant exchange rates) and a staggering 70% decline in its operating margin, which now stands at CHF 204 million or 5.9%. Additionally, net liquidity has decreased by CHF 554 million, a quarter less over just six months. Despite acknowledging significant deficits in its manufacturing division, the Swatch Group remains committed to maintaining full employment in its production activities, a stance supported by its historical reference shareholder, the Hayek family.

The Watches & Jewellery segment (without Production) suffered a considerable decline in sales in the first half of 2024. As a result, the operating margin for the segment also saw a sharp drop, to 11.0% (previous year: 19.0%), which was also attributable to the deliberate maintaining of marketing investments. 

• The huge reduction in demand for luxury goods in China (including Hong Kong SAR and Macau SAR) and in the Southeast Asian markets, which are heavily dependent on Chinese tourists, had a considerable negative impact on sales and results due to the strong presence of the Group's brands in the region. 
• In contrast to this, the Swatch brand exceeded its sales in China compared to the previous year by 10%. 
• In Europe, the Group's own retail business achieved stable sales at the previous year's level. The geopolitical conflicts unsettled many European retailers, however. Their fear of excessive stock levels led to a significant reluctance to reorders and thus a reduction in wholesale sales of over 10%. Positive exceptions to this were Switzerland and Spain. 
• The USA achieved the same record sales seen in the previous year. 
• In Japan, which is one of the most important countries for luxury goods and the third-largest export market for Swiss watches, achieved record sales, with growth of over 30% compared to the previous year. 

• Other important countries such as South Korea, India and the United Arab Emirates also considerably outperformed the previous year. 

The Group's retail activities exceeded the 45% mark of total sales in the Watches & Jewelry segment for the first time. Sales in the first half of 2024 were above those of the previous year in local currencies, except for China. 

• The luxury brands Breguet, Blancpain and Omega were particularly affected by the challenging market environment, while Harry Winston performed well. 
• Swatch, Tissot and Longines were able to maintain their strong position. 

• Demand for the MoonSwatch and Scuba Fifty Fathoms Swatch remained high throughout the entire period under review and was further accelerated by the success of the new “Mission to the MoonPhase” models New Moon and Full Moon as well as the three new “Mission on Earth” models Lava, Polar Lights and Desert.

From a productions point of view, the sharp drop in orders, both from third parties and from the Group's own brands, led to considerably lower sales and strongly negative operating results in the Production segment. The Group deliberately renounced to make any redundancies in order to mitigate the financial impact in the short term. In the past, the strategy of maintaining all production capacities and not laying off qualified staff has enabled the Group to recover more quickly and benefit more significantly from the next upswing. However the real issue arises from the Swatch Group's production capacity, which was originally designed to produce over 20 million units annually for its own brands, plus additional units for third-party clients. However, after receiving approval from COMCO (Switzerland’s anti-trust authority) to select its clients, the group was forced to exclude these third-party clients. Last year, Swatch group sold approximately 11.2 million units, about half of its previous sales volume. Although the Swatch Group's production still accounts for 70% of the Swiss watch industry's total output, it is insufficient to keep all its factories operating at full capacity. Among the brands, Tissot sold 3.1 million units last year, while Swatch sold 5.8 million units, including 2 million MoonSwatches. The other brands within the group are experiencing stable or declining sales volumes.

And finally the inventories increased by CHF 399 million or 5.5% compared to December 2023, primarily in the finished products category of watches and jewelry with the number of employees decreasing by 0.7% in the first half of 2024, amounting to 33 353 persons at the end of June (December 2023: 33 602).

Expected Results From The Second Half Of 2024

While there aren’t too many expectations from the Chinese market this year, the Group is expecting a strong surge in Japan and the USA in the second half of 2024, accelerated primarily by investments in their own retail network. The questions remains – Is Swatch Group manufacturing way more than it can sell?

For the full report, visit Swatchgroup.com.