The owner of brands like Omega and Longines, the Swatch Group just announced its results for the first half of 2024. The half-year numbers crystallised a slowdown that the watch industry has felt since late 2023.

Revenue was down 14.3% to CHF3.44 billion, while operating profit plunged 70% to just CHF204 million, giving the group an operating margin of just 5.9%, compared to 17.1% from a year earlier.

According to Swatch, the fall in revenue was “triggered by the sharp drop in demand for luxury goods in China (including Hong Kong SAR and Macau SAR)”. At the same time, wholesale sales fell over 10%, indicating that third-party retailers are ordering less watches from the group’s brands, which in turn indicates the retailers’ pessimism for the short- and medium term.

Swatch also explained the poor results by noting the group did not “make any redundancies… [and] maintaining all production capacities and not laying off qualified staff”. This was done so that “the Group [will] recover more quickly and benefit more significantly from the next upswing.” The progressively weakening positions of each of the group’s brands relative to the competition – marques like Breguet and Blancpain stand out in this regard – imply this might be overoptimistic.

Notably, Swatch stated “the Swatch brand bucked the negative trend” thanks to the bestselling MoonSwatch, but this was not (and will not) be sufficient to help the rest of the group given the low value of Swatch watches.

Despite the produce several million units a year, the average CHF100 or so price of each watch means the entire Swatch brand turns over CHF500 million at best, while having a smaller margin than its luxury siblings of the group.

Watches on the books

As significant as its sales and profit figures is the group’s balance sheet, which shows inventories of CHF7.71 billion. Mostly made up of finished products, namely watches and jewellery, carried on the books at cost, inventories are equivalent to almost a full year’s revenue. But because they are valued at cost, inventories are equal to several years’ sales (between four to five, or even more).

In comparison, major luxury groups that publish their numbers have annual sales that are multiples of inventories, as high as nine to ten times. The implication of this is stark: Swatch Group is likely producing far more watches than it can sell, even accounting for a potential future “upswing”.

For the full report, visit Swatchgroup.com.