Swatch shares sink as profits plunge on weak Chinese demand

(Sharecast News) - Swatch Group's share price plunged by more than a tenth on Monday morning after the high-end watch and jewellery maker reported a larger-than-expected drop in first-half profits as demand was affected by the ongoing luxury market slowdown in China. The Swiss company, which owns brands like Tissot, Balmain and Omega, reported an operating profit of CHF204m (£176m) for the six months to 30 June, down sharply from the CHF686m reported the year before and well below analysts' forecasts of CHF476m.

Operating margins in the watches and jewellery divisions sank to just 11.0%, from 19% a year earlier, partly due to the company maintaining its marketing investments amid a decline in revenue.

Net sales totalled just CHF3.45bn for the period, down 14.3% on last year at constant currencies and short of the CHF3.75bn expected by the market.

The company noted a "huge reduction in demand" for luxury goods in China and the Southeast Asian markets, which are heavily dependent on Chinese tourists. This "had a considerable negative impact on sales and results due to the strong presence of the group's brands in the region", it said.

Only the Swatch brand bucked the negative trend in China, increasing sales by 10% year-on-year.

Looking ahead, the company said it expects conditions in the Chinese market to remain challenging until the end of 2024, but expects further strong growth in Japan and the US in the second half.

The stock was down 10.6% at CHF169.20 by 1017 in Zurich.