Hong Kong protests expected to knock up to 4% off earnings for Swatch Group and Richemont


Ongoing protests in Hong Kong and a knock-on effect to Macau are already damaging sales for the major luxury watch groups and the situation is expected to get worse before it gets better, according to a research note by private equity firm RBC Europe Limited.

“Three recent data points confirmed the significant trading deterioration in Hong Kong/Macau in July-August. First, Hong Kong Watches and Jewellery retail sales declined 24% year-on-year in July (worsening from -17% y-o-y in June and -6.5% in H1) and we expect the rate of decline to worsen further in August (est. down 30-40% YoY). Second, Hong Kong tourist arrivals declined 5% in July, the first monthly decline since early 2018. Third, the Macau gaming revenue trend worsened sequentially in July (-9% vs. -3.5% in June) as high-rollers remain cautious and Hong Kong turmoil is impacting travel flows to Macau. We think these negative data points justify the cautious Hong Kong outlook from local players,” RBC says.

Swatch Group and Richemont are more exposed to trading disruption in Hong Kong because the city state accounts for 13% and 11% of total global sales respectively, RBC estimates.


However, the research note concludes that earnings will only be down by around 3-4% for Richemont and Swatch Group because a significant proportion of business lost in Hong Kong will be made up elsewhere.

“The forecast cuts may be seen as relatively modest for a few reasons. First, there should be a partial offset from repatriation of Chinese luxury purchases to Mainland China and shifting tourist purchases from Hong Kong/Macau to other Asian destinations such as Japan, Korea, Taiwan and Singapore. Second, the comparison base in Hong Kong will get significantly easier from September onwards. Third, price-mix may be supported by more positive Chinese cluster demand for higher-end watches than for low-priced watches. Fourth, we believe that Swatch Group’s sales growth remains in positive territory in Europe and in the US, in addition to Asia excluding HK/Macau,” RBC says.

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