Swatch Forecasts Revenue May Return to Pre-Pandemic Levels

Swatch Group AG forecast a rebound from its lowest earnings in more than three decades with sales possibly returning to pre-pandemic levels as travel revives.

There’s a good chance revenue in local currencies will approach the amount Swatch had in 2019, the company said Thursday. The firm’s operating profit will be “substantially higher” than the 1 billion francs ($1.1 billion) that same year, Chief Executive Officer Nick Hayek said in a phone interview.

Watchmakers have been among the hardest-hit luxury-goods makers during the pandemic because they have high fixed costs related to production. Profit tends to be volatile at such companies, because once they’re operating at full capacity, the costs become much more manageable. Switzerland’s exports of timepieces dropped 22% in 2020, a decline on par with the 2009 financial crisis, the Federation of the Swiss Watch Industry also said Thursday.

”There is pent-up demand for watches and jewelry,” Hayek said in a phone interview. “Consumers feel like spending money, and they have the cash because they weren’t able to go out much or travel.”

The Swiss watch federation predicted the rebound will start in the second quarter.

Swatch has also made substantial cost cuts by shutting underperforming stores, and by negotiating lower rents and better advertising conditions, Hayek said.

In China, sales have rebounded with double-digit growth as the country was among the first to emerge from lockdown. The U.S., Russia and countries in Asia like Japan and South Korea are already seeing a “very positive trend,” while Europe will be quick to follow, especially if tourists return, he said.

Swatch’s factories and workshops are gradually returning to full capacity, boding well for a boost in profitability. Bottlenecks have appeared for brands including Blancpain, Omega, Longines and Tissot. Last year Swatch also had a cyber attack that interrupted production at Omega for 10 days.

”The recovery in production means we will see an above-average rebound in margins,” Hayek said.

The stock fell as much as 3.5% after the company reported its first annual net loss on record, according to Luca Solca, an analyst at Sanford C. Bernstein. Operating profit fell 95% to 52 million francs.

Swatch cut 10% of its jobs in 2020 as Hayek strayed from his usual policy of avoiding job cuts even during downturns. Most were related to store closures as the company permanently shut 384 shops. Hong Kong was a special focus, with the network there reduced to 38 from 92 as Chinese luxury spending returned to the mainland.

Analysts have been forecasting 2021 revenue of 7.09 billion francs, compared to 8.24 billion francs in 2019.

©2021 Bloomberg L.P.

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