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Watches of Switzerland shares surge 24% as Covid quarter beats expectations

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Investors drove The Watches of Switzerland Group (WOSG) share price up by 24% yesterday as the luxury watch and jewellery retailer beat expectations with a drop in sales of just 28% to £151.6 million for the 13 week period ending July 26.

All stores were closed for around half of the reporting period on both side of the Atlantic, but the US decline in sales was less steep at -20.8% compared to -30.1% in the UK.

The UK business is more affected by a lack of tourists visiting its most productive stores in central London along with airport boutiques at Heathrow and Gatwick.

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For the three months to July, there was a huge swing towards domestic business in the UK. Tourist sales in cities and airports accounted for a third of revenue in the UK in the May to July months in 2020, this dropped to just 3.3% this year.

Business from domestic customers in the United States has increased its contribution to overall group sales from 26% in Q1 last year to 28.6% this year.

Across the group’s 135 stores, WOSG reports that trading hours were down by 90% in May, 60% in June and 26% in July.

Ecommerce sales rocketed during lock downs, up 117.8% in May, 77.7% in June and 46.2% in July as stores reopened.

Over half of WOSG turnover comes from Rolex, which does not allow its authorised dealers to sell its watches online. However, WOSG associates took orders for Rolex watches throughout the lock down, and they could be collected from stores as they reopened.

On the first day after non essential retailers were allowed to reopen in London, WatchPro visited the Rolex store run by WOSG on Bond Street, and was told that its appointments were fully booked for customers picking up watches they bought during confinement.

This contributed to a dramatic upturn in sales between May when stores were closed and June. In May, brick and mortar sales were down 87% year on year, but by June, despite stores reopening only in the middle of the month, sales were up YoY by 1.4%.

Results show that July’s in-store sales were flat year on year, despite trading for only one-third of the hours.

By July, trading hours had risen to 78% of the previous year’s level, and sales were up 1.1%.

“While we began FY21 with our global store portfolio closed due to the pandemic, we were well prepared for the re-opening of our stores during Q1 and trading has exceeded our expectations in both the UK and the US. The UK has been driven by continued strong ecommerce sales and domestic demand in regional stores, partly offsetting greater declines in London (due to reduced tourism) and our airport stores,” Brian Duffy, chief executive of WOSG describes.

“The US continued to gain momentum during the period with all re-opened stores performing strongly versus the prior year. This continued strong performance is testament to our long-standing brand partnerships, focus on exceptional customer experience, well-established multi-channel leadership and the strong fundamentals of the luxury watch category in our markets, where demand continues to exceed supply. Our encouraging Q1 sales performance underpins the strength of our supply-driven business model and provides the basis on which we provide FY21 guidance,” he adds.

Forward guidance for the full financial year predicts sales rising by around 5% £840 to £860 million, with profit margins flat year on year.

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Rob Corder

The author Rob Corder