Watches of Switzerland Group H1 2025 Earnings Update

Guidance reiterated with massive confidence

Its been a great couple months, if you bought on my pitch you would have been up a solid 48%.

Half Year Recap

• Revenue £785 million, +4% at constant currency, +3% at reported rates on prior year

  • Luxury watch revenue -2% in constant currency, -3% reported.

    • “revenue was impacted by one-off increases in showroom stock levels to enhance displays and client experience in Q1 FY25, particularly in the US”

  • luxury jewelry revenue ex-Roberto Coin acquisition was -6%, UK market (+4%), double digit growth within luxury branded jewelry. According to mgmt US luxury jewelry revenue was impacted by the squeeze on the commodity bridal category and prior year clearance activity.

  • US revenue of £355 million, +11% at constant currency, +8% reported

    • Q1 was -1%, Q2 was +24%

  • UK revenue of £430 million -1% on prior year

    • Q1 was -4%, Q2 was +2%

• Inventory levels +£77m (+19%) – reflects inventory on acquisitions of £76m.

  • Inventory restocking completed in Q1, impacts FCF

• Free cash flow of £28 million (H1 FY24: £57 million) with conversion of 32% (H1 FY24: 60%);

  • “reduction driven by the seasonal increase in working capital for Roberto Coin and timing of supplier payments. Expected c.70% free cash flow conversion¹ for the full year”

Call Notes

• Demand for our key brands, particularly products on Registration of Interest lists, continued to be strong.

  • “good conversion on the lists and good healthy maintenance of the list, if you like, names getting added more than those that we're managing to take off”

• “We do have good visibility of our intake from key partners……As of this year, we have units and value. So very confident about totally confident about the numbers that we've included for key brands and our forecast and our expectations for the year”

  • “units and value”, so there should not be an unexpected guidance cut like in January this year based on the wrong expectation for watch values.

• “we're confident that based on supply visibility and the project timing that we have confirmed, all the structural work is done. So we know the dates down to the day more or less.”

• Pre Owned business +50% yoy in the first half, margin improving

• strong start to Q3 ahead of the holiday trading period according to mgmt

Thoughts

Guidance is probably going to be met based on the very strong language in the call. Management says the structural work with the store opening is done and they have both the unit and value allocations this time from the watch brands. No more January rug pulls. Great.

Notably, the Rolex flagship on bond street, the Atlanta Rolex flagship, and the Manchester AP House are all opening in H2. These are big stores, Rolex pulled allocation from two other competitors on bond street¹ to make the WOSG Rolex flagship store the only point of sale for Rolex on bond street. These stores are what supports the guidance management gave. Other big WOSG stores should also take allocation/market share from competitors from the region as well.

Like I previously said on twitter, the Roberto Coin US rights acquisition for 6x P/E was great. WOSG has essentially been doing DTC for watch brands for a few years now and are retail experts and CEO Brian Duffy is a marketing and branding genius. This is right in their circle of competence and they will be able to start growing in the US branded jewelry segment(way larger than watches in the US). Roberto Coin was essentially flat when jewelry segment declined by 20% at WOSG last year. I liked the Hodinkee acquisition a lot as well, in my eyes the biggest thing they got was basically a targeted funnel that funnels people onto the WOSG ecommerce website, taking ecom share. They paid 11million pounds for it which is basically nothing for the 22million annual unique online traffic.

The company now trades at a 11x fwd EV/FCF and 15x fwd pe. I have trimmed some of my shares since my original pitch in July and right after H1 earnings but continue to be long with 33% of my portfolio.

I am not a financial advisor, always do your own DD.

1. https://www.watchpro.com/wempe-closes-bond-street-store-after-losing-rolex/
“Prior to you back a couple of years ago, there were 4 agencies. 2 of them were ours” - H1 25 call