10 Comments

Great article on a very interesting business. However, based on your industry chart, Swiss watch exports were roughly down/flat from 2013 to 2019. Covid gave it a strong push after 2020, but not sure this can be sustained and don’t know how far they can fall.

In addition, luxury good exports typically fall in a recession. It’s probably great to invest in those in a downturn, but it looks more like we are still in a cyclical peak or at least an upturn.

Overall, it’s just very hard to tell how much sales and margins can fall, whether in a recession or just payback from Covid. LTM multiples look great, but I don’t know what normalized revenue, margins and profit looks like.

Maybe you have figured it out, but those are some of the thoughts and worries I have on the name.

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I cant forecast macro, obv if US consumer disappear our thin retailer margins take a hit. but I think mitigants are 1) exports to UK did not disappear 2008-2009 2) Rolex + Patek + AP probably make up over 60% of their revenue and is more resilient than the rest of the industry.

pretty sure this is at least a short term bottom tho: based on this yrs data.

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Would you be able to expand on how you got to 46% of UK market. UK Luxury watch sales were at 709 GBP. What do you have for the value of the UK luxury watch market. I got $1.35bn/1.05bn GBP. so around 67%. Am i looking at this wrong? would appreciate the help!

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I went with numbers mgmt gave.

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Bill, Great analysis on WOSG! Something to think about - if Rolex did go more DTC beyond Bucherer/Tourneau, could one rationale be because Authorized Dealers (ADs) are major suppliers to the gray market (aka “pre-owned” or “secondary”, but often never-worn watches) and Rolex wants to limit the transfer of value from it by the ADs? Rolex’s launch of its certified pre-owned (CPO) program also seems to hint at this. Note that CPO unsurprisingly launched first at Bucherer/Tourneau before WOSG got it. If I look at luxury goods companies in general, the trend has been for more DTC sales via company-owned outlets than via B2B / wholesale distribution. While you didn’t explicitly mention this, you implicitly listed some of the reasons why a DTC-focused distribution strategy makes less sense in watches, and reducing AD sales into the gray market would be my only pushback to that as ADs are not supposed to sell for > than MSRP / RRP / list price. Thanks!

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I think it could be a argument to DTC, or be an argument to consolidate agencies. "Watches of Switzerland and Brian have excelled with Rolex because such practices were strictly prohibited throughout the company. No employee on the shop floor would engage in questionable deals that could jeopardize the relationship with Rolex or with any other brand" - WOSG former head of operations. Shady stuff like selling to the grey market usually happens in small mom and pop operations and consolidating agencies towards their more trusted retailers is way easier and would accomplish more or less the same thing.

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Thanks, Bill - that color makes sense!

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What do you think of them likely to lower their long range plan guidance?

Their Long Range Plan outlines an ambitious goal of doubling both revenue and profits by the end of FY28. Given that FY24 is essentially flat year-over-year, this implies a compound annual growth rate (CAGR) of approximately 20% for the top line from FY25 to FY28. This projected growth rate seems quite aggressive, especially considering that the historical CAGR for revenue growth from FY16 to FY24 was 16% based on their latest annual report.

Given how the stock perform in the last guidance adjustment, seems like there could be better entry after the guidance is lower.

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The market is not remotely pricing in a 20% cagr so I think the cut is mostly priced in already. Frankly I dont think they can reach LRP but I hope they surprise me.

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I agree it seems hard. Management seems to have a tendency to over promise…

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