Swatch First-Half Sales up 16.7%

Swatch Group said Tuesday that gross sales climbed 16.7 percent in the first half of 2007 to 2.7 billion Swiss francs ($2.2 billion), led by its watch and jewelry segment, its core business, which reported a 20 percent increase for the period, exceeding 2.1 billion Swiss francs ($1.7 billion) in gross sales. Overall net sales for the company increased 16.2 percent for the period. Sales gains were reported in all geographical regions.

Net income for the world’s largest watchmaker increased 39.4 percent to 460 million Swiss francs ($377.7 million). Operating margin rose from 18 percent to 19.6 percent year-over-year.

The Watches & Jewelry segment, “demonstrated its strong position as the growth engine of the Group,” according to Swatch’s report. The production segment also made a significant contribution to the Group’s overall performance.

Swatch Group said it continues to benefit from strong worldwide demand for watches and jewelry, reporting growth in all of its 18 brands.

Growth in the luxury segment, led by Breguet, Blancpain, and Omega brands, was particularly strong, the company said. All other price categories also recorded impressive growth rates, led by Longines and Tissot. The Swatch brand sold far more watches and jewelry in the first six months of 2007 than in the prior-year period and recorded double-digit growth.

The Swatch Group has substantially expanded its worldwide marketing activities in order to provide effective support for rapid growth in its core business over the long term, including its increased presence in the Chinese, Russian, and U.S. markets. In addition to stepping up activities in the U.S., Omega boosted its profile in China as Title Sponsor of the Mission Hills World Cup golf tournament and as official timekeeper of the 2008 Olympic Games in Beijing. Longines also invested heavily in positioning the brand more firmly in the sports sector.

“All these marketing efforts will bear fruit in the medium term, in the form of further growth,” the company said.

The further rise in operating profit—despite a rise in raw material prices and the luxury goods tax in China—is mainly attributable to the product mix, higher volumes, and efficient cost management, the company said.

In individual regions, double-digit growth was chalked up in Asia, America, and Europe. Sales in Japan leveled off due to the difficult economic situation and the weak yen.

The company in the first half of the year opened several new retail ventures, including the N. G. Hayek Center in Tokyo, the first outlet shops with its U.S. joint venture partner, and the acquisition of airport shops in France. The Group also opened additional boutiques in premier locations. “All of this proved a key factor in boosting the Group’s market position in key markets and strengthening the share accounted for by retail activities,” Swatch said.

The production segment for watches, watch movements, and components also posted record sales due to strong demand and increased expansion of capacities, including third-party customers and Swatch Group companies. Further expansion is planned in order to tackle existing production bottlenecks. The company noted the shortage of skilled watchmakers, and it said it is heavily involved in setting up watchmaking schools to address this deficiency.

Increasing pressure on component prices in the mobile telephony sector impacted the development of the company’s Electronic Systems segment in the first half of 2007.

In spite of the weak U.S. dollar and yen, the currency result was positive for the Group based on the strong euro.

In its outlook, Swatch’s leadership expressed confidence in its performance for the remainder of the year based on its “strategic thrust, coupled with its strong brand portfolio, and sound market position backed by a strong industrial base. The Group’s expectations for the second half-year are high. “In view of the sustained positive mood among consumers worldwide, there is every indication that the current boom will continue.”

The Group did note that its forecast may change if world currencies change of if its production business is unable to keep up with increased demand.

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