The Swatch Group, the world’s largest watchmaker, posted a 6.6% drop in total sales to 1.8 billion Swiss francs ($1.28 billion) for the half year ending June 30. Net income for the Swiss watch conglomerate, based in Bienne, Switzerland, fell 9.7% to SFr186 million ($131 million), says a half-year report released Aug. 21. However, it expects a “positive second semester.”

Watch production, which provides 70% its revenues, fell 8.2% to almost SFr1.3 billion ($892 million). Sales for the watches movements and components alone (the group also makes electronic systems) declined 1.1% to SFr850 million ($457 million).

Overall, the Group blamed “difficult conditions and confronted with unforeseeable factors.”

Though the first half started well for the Swatch Group—the first quarter saw a 7% sales gain—those results were “neutralized” by the strong Swiss franc and other “monetary influences, especially that of the US dollar and allied currencies.” Second quarter results were hard hit, says the Swatch report, by the “exceptionally strong negative factors” of the respiratory illness SARS, which contributed to the decline in travel, worldwide tourism and sluggish consumer spending, and “the continuing strength of the Swiss franc against all relevant currencies,” except the Euro.

“These factors, and their sudden impact on sales could not have been planned,” says Swatch report. Even so, the Group didn’t cut back in either marketing or research and development, and made almost no local price increases.

The report cited “further organic growth” in the prestige and luxury watch market, with Breguet especially reporting “impressively strong gains.” Omega, Blancpain, and Glashütte also posted “favorable” half-year results. However, Rado posted declining sales in Europe and some other important markets. Mid-market brands showed some “positive” movement, especially Tissot and cK. In the basic market segment, however, the popularly-priced Swatch brand—for which the Group is named—was hit in May and June by “a drop in tourism and negative monetary influences.”

The Group private label watch business continues to be downsized. A decline in sales of movements and components to third parties was “more than offset” by higher orders placed within the Group itself.

Despite the poorer-than-expected first half, the Swatch Group conglomerate is “optimistic” about the next six months and the year as a whole. Its report noted that second half started well, with fast-rising sales in July and August, and more visitors and sales at its own stores around the world. There is a “normalization and even improvement in business observed in many markets, together with the slow recovery of travel and tourism,” said the report. In addition, the group is advert sign aggressively and continues its cost-cutting, which its expects to have “an even greater impact on the second half.”

JCK