Swatch (SWGAY) missed analyst expectations with a sharp fall in sales and earnings over 2016, but struck an upbeat tone for 2017, citing a rebound in Chinese demand, which accounts for about 47% of its total turnover.
Sales of the watchmaker's brands, which include Swatch, Omega and Tissot, came in at 7.55 billion Swiss francs ($7.63 billion), down 10.8% on 2015 at constant exchange rates. That was about 9.5% below analyst consensus forecasts of Sfr 7.7 billion. Operating profit for 2016 was Sfr 805 million, down 44.5% year-on-year and 7.2% below analysts consensus forecasts of about Sfr870 million.
Swatch shares were down 1.7% in early trading Thursday at Sfr 344.60 but had advanced around 20% over the past three months.
Swatch's results cap a difficult year for Swiss watchmakers which have suffered a 10% slump in sales as key markets including Hong Kong, Europe and the U.S. all declined, leaving retailers with significant stock that continues to be a drag on profit margins.
Speaking on Thursday to CNBC, Swatch CEO Nick Hayek said he was positive about the outlook for his company and wider demand for Swiss watches over "two years, three years, and four years." He also said he did not fear a rise in U.S. protectionism, claiming that he was hopeful that President Donal Trump's focus on manufacturing jobs would expand and enrich the middle class, which is his company's key market.
Swatch's investors were left to take shorter-term encouragement from signs of stronger demand in the final two months of 2016 and into January, when Swatch claimed to have noted an uptick in sales, notably in Asia and the Middle East.
"The months of November, December and January showed, particularly in mainland China, very good growth in the Watches & Jewelry segment, with a substantial improvement in operating margin," said Swatch.
The comments echo report on China published this week by Exane BNP, which noted returning demand for luxury goods and tipped Swatch to be one of the chief beneficiaries. Swatch relies on Chinese buyers for about 47% of its sales and makes about 34% of its turnover in mainland China.
Swatch said that a strong pipeline of new product launches and the sales growth in the most recent months had left it confident of "healthy growth in 2017" in all of its markets, including the lackluster U.S. and European regions.
"The positive growth in November/ December implies a sharp acceleration from the beginning of 2H16 and is consistent with recent comments from (rival watchmaker) Richemont (CFRUY) , however we would expect a negative share price reaction given the magnitude of the revenue and EBIT miss in 2H and the recent rally in the shares," noted Goldman Sachs.