Watches of Switzerland Shares Surge

Shares of Watches of Switzerland (LON: WOSG) jumped over 10% on Thursday following its half-year results for FY25, which showcased a strong recovery in Q2 despite a modest miss on revenue and EBIT.

The company reconfirmed its full-year guidance, signaling confidence in its trajectory as it navigates challenging market conditions and currency fluctuations.

Key Financials

• Revenues: £785 million for 1H25, marking a 4% increase at constant currency but falling 2% short of consensus expectations.
• EBIT: £66 million, missing forecasts by 7% due to higher-than-expected overhead costs.

Analysts at RBC Capital Markets noted that the miss was largely expected due to one-off impacts in Q1, including a temporary increase in showroom stock for Rolex, which has since normalized.

Watches of Switzerland demonstrated a sequential improvement in quarterly revenue growth, with a turnaround from a 2% decline in Q1 to an 11% increase in Q2.

Market Performance

• US Market: Revenue of £355 million, outperforming expectations with a 24% growth in Q2 after a challenging first quarter.
• UK Market: Revenue at £430 million, still down 1% year-on-year but turned positive in Q2, signaling recovery in a key region.

Category Insights

The Luxury Watches category saw a 2% decline in constant currency revenue, but Luxury Jewellery revenues surged by 103%, boosted by the recently acquired Roberto Coin, offsetting a 6% decline on an organic basis.

The integration of Roberto Coin has been well-received, positioning it as a key driver of future growth.

Other Financial Metrics

• Gross Margins: Steady at 36.2%, aligning with consensus.
• EBIT Margin: Contracted slightly due to increased overhead costs.
• Net Debt: Rose to £120 million, reflecting higher inventory levels, which increased by 20% year-on-year ahead of peak trading.

The decision to maintain FY25 guidance was crucial for the stock's rally. The company reiterated its revenue target of £1.67 billion to £1.73 billion, with EBIT margin expansion of 20 to 60 basis points.

Analysts from RBC Capital Markets and Jefferies pointed to the Q2 recovery and current trading momentum as evidence of improving trends lending credibility to the guidance.

Confirmation comes despite challenges posed by the appreciation of USD/GBP, with the US market contributing 45% of group revenues. Free cash flow of £28 million and improved trading in both the US and UK have further strengthened investor confidence.