Zurich (Reuters) -After China’s pandemic lockdowns had less of an effect than expected on the world’s biggest watchmaker’s first-half results on Thursday, Swatch Group stuck to its forecast for double-digit sales growth this year.
More than 40 percent of Omega’s sales came from Greater China in 2021. The company that made the watches said that store and warehouse closures in China in April and May cut its sales by about 400 million Swiss francs ($407 million).
Swatch Group (SIX:UHR) said that double-digit sales growth in major markets in Europe, the U.S., and the Middle East more than made up for a drop in sales in China. This caused sales to rise 7.4% to 3.61 billion francs in the first half of 2022, when prices were kept the same.
That was less than the double-digit goal for the period, but the company said that it expected to hit that goal for the full year because of strong growth in America, Asia, and mainland China. The company’s new bioceramic MoonSwatch has been in high demand.
Analysts liked that cost discipline helped the operating margin improve, but they were disappointed that the net profit, which went up 18.5 percent to 320 million francs, wasn’t as high as they had hoped.
ZKB analyst Patrik Schwendimann said that the optimistic outlook didn’t take into account the possibility of a recession and that the company’s Russian activities might have to be written off. Swatch Group only said that the conflict in Ukraine had a less than 1% effect on sales.
Luca Solca, an analyst at Bernstein, said that the lockdowns in China had caused inventories to rise, while Jean-Philippe Bertschy, an analyst at Vontobel, said that this led to a big drop in free cash flow.
Thomas Chauvet of Citi and Jon Cox of Kepler Cheuvreux both said that the results were strong despite the shortfall in China. However, Chauvet also said that he didn’t see any catalysts for the stock in the medium term “after years of revenue underperformance and disappointment.”
Last year, Swatch Group shares dropped out of the Swiss blue-chip SMI index. At 07:54 GMT, they were up 1%, which was better than the European sector index.
On Friday, Peer Richemont will report its sales for the quarter ending in June.
$1 is worth 0.9832 Swiss francs.
