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Swatch Drops to Lowest in Decade as Viral Outbreak Threat Looms

Swatch Earnings Decline as Smartwatches Encroach on Swiss Market

(Bloomberg) --

Swatch Group AG fell to the lowest in a decade as Switzerland’s largest watchmaker faces a triple whammy from protests in Hong Kong, competition with smartwatches and the viral outbreak in China.

Operating profit fell for the first time in three years, dropping 11% to 1.02 billion francs ($1.1 billion). Analysts expected 1.09 billion francs. The shares fell as much as 4.1% Thursday morning. Swatch aims to boost sales 5% to 6% this year at constant currency, Chief Executive Officer Nick Hayek said in a phone interview.

Swatch is feeling the pinch of weaker demand for lower-priced timepieces amid competition from the Apple Watch and fitness bands. Last year, Switzerland exported fewer watches in any year since 1984 as demand collapsed in the lower end of the market. Swatch depends on high-volume sales from brands like Tissot to have the scale necessary to keep its costs in check.

“We expect growth in China this year, and won’t change now our forecasts because of the coronavirus,” Hayek said. “If it only lasts one to two months, it won’t have a negative impact for the year. Of course January and February will probably not show good numbers, but I’m confident the problem will be brought under control.”

Luxury-goods makers are bracing for the impact of the spread of the coronavirus, which has killed 170 people since originating in Wuhan, China. The outbreak could reduce the industry’s earnings by as much as 8% this year, RBC analyst Piral Dadhania has estimated.

The weaker results also show how much the Swiss watch industry relies on key market Hong Kong, where margins are typically higher due to lower taxes. Disruption in that market cut 200 million francs off of second-half sales, the company said. Chinese shoppers last year increasingly bought watches on the mainland to steer clear from political protests in Hong Kong.

Swatch Drops to Lowest in Decade as Viral Outbreak Threat Looms

The owner of the Omega and Longines brands forecast “healthy” growth this year in local currencies in all markets except Hong Kong, where Hayek said he expects a strong double-digit decline.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, Andrew Noël

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