Watches of Switzerland Group (WOSG)

LONDON (ShareCast) - (Sharecast News) - Watches of Switzerland hailed record full-year profit and revenue on Tuesday, ahead of its previous guidance and market expectations.
In the 53 weeks to 3 May, statutory pre-tax profit rose 76% to £133m on revenue of £1.8bn, up 11%. Adjusted earnings before interest, tax, depreciation and amortisation ticked up 5% to £202m.

"This performance reflects the strength of our business model, the quality of our brand partnerships and consistent execution across our strategic growth pillars," it said.

Revenue in the US - which now accounts for 51% of group revenue - increased 18% to £927m, while the UK saw a 5% uptick to £901m.

Growth in the US was broad-based, led by underlying demand, showroom investment and the contribution from recent acquisitions. In the UK, meanwhile, trading improved over the course of the year despite a more subdued consumer environment.

Watches of Switzerland said showroom investment remains central to its UK approach, noting that since opening, its flagship Rolex boutique on Old Bond Street has performed "exceptionally well" and is now one of the leading Rolex retail destinations globally. Pre‑owned watches also performed strongly in the UK, it said.

The luxury watch retailer said the external operating environment remained challenging, with macroeconomic uncertainty and inflationary pressures, particularly the price of gold, persisting.

The introduction of tariffs on Swiss watch imports in the US led to price rises and changes to retailer margin structures. While tariff levels subsequently moderated, some of these changes have remained, the company said.

"Against this backdrop, we are very encouraged by our performance, with trading improving as the year progressed," said chief executive Brian Duffy. "This was supported by investment in our showroom estate, growth in pre‑owned, progress in luxury jewellery and contributions from acquisitions, alongside our focus on delivering a high‑quality client experience."

The company said trading in the first 10 weeks of FY27 has been encouraging. "Whilst we remain mindful of the geopolitical environment, we have carried good US momentum into the new year and see encouraging signs the UK market is improving," it said. "This underpins our confidence in delivering another year of strong revenue growth, alongside a return to Adjusted EBIT margin expansion."

At 0937 BST, the shares were up 0.3% at 752p, having surged on Monday following a Reuters report the company has held talks in recent months over potential offers to take the luxury watch retailer private.

Dan Coatsworth, head of markets at AJ Bell, said: "Is it takeover time for Watches of Switzerland? Strong gains in profit and cash flow, a leading position in the UK, and clear growth opportunities in the US all point to a business in fine health. It's no wonder the rumour mill is running red-hot on bid speculation, with private equity and industry players potential buyers.

"Having peaked at close to 30 times forward earnings in 2022, Watches of Switzerland's shares have suffered a major de-rating in recent years, with the stock languishing around 11 times earnings up until a month ago. The valuation has jumped on the recent takeover speculation to 14 times forward earnings.

"This looks like a classic example of a UK stock where the market has been spooked by a growth hiccup and has lost interest. If the market won't fairly value a decent company, history shows it is only a matter of time before a bidder appears.

"There is enough in the latest results to keep investors happy with regards to business performance, but the shares have pulled back in a weak market. Management will be wondering what kind of rabbit they must pull out of the hat to please people, and if they can't, they might conclude it's not worth being a listed company."

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