Swatch Rises Despite Tough Time in Second Quarter
Shares in Swiss watchmaker, Swatch (SWGAY) rose on Thursday morning as the group announced a not-as-bad-as-expected performance for the first half after last week's shock profit warning.
After the July 15 update, investors were braced for a 12% revenue decline and for operating profit and margin would be in the region of 50%-60% lower for the period given weakness in parts of Europe and Hong Kong's market for luxury watches. The shares fell by around 15% in response to the July 15 announcement, to touch 2016 lows of Sfr257.20.
However, on Thursday the group revealed a 53.6% Ebit decline to Sfr353 million, and a 47% percent drop in the operating margin to just 9.5%. Revenue fell by a less-than-feared 11%.
Management attribute much of the result to a economic malaise in parts of Europe and weak tourist flows in France and Belgium, although they also noted that part of the deterioration in margins was due to increased investment in staff, products and marketing.
"Swatch Group anticipates clear growth in local currency in the second half of the year compared with the weaker second half of 2015," the firm said in its announcement.
Swatch shares rose by as much as 3.7% in early European trading on Thursday, to trade above Sfr270.0, as concerns among investors over the outlook eased slightly.
UBS last week reiterated a neutral rating in response to the profit warning and affirmed its price target of Sfr281.0 for the stock. Analysts at Barclays also reiterated their equal weight rating, the equivalent of a neutral rating, but cut their price target from Sfr300.00 to Sfr250.00.
Two days before the profit warning, analyst at Berenberg had reiterated their hold rating for Swatch, stating that first-half numbers were unlikely to inspire anybody, before affirming their price target of Sfr305.00 for the shares.
UBS, Berenberg and Barclays are yet to respond to today's numbers.