CaratSwatch's split screen: nine percent growth, sixteen million profit
Swatch Group's first half: revenue CHF 3.12 billion, up 2% reported and 9% at constant currency, with the US up 27%, Japan up 20% and Spain up 28%. Net profit fell 6% to CHF 16 million — a margin of half a percent.
§1The top line recovers.
Swatch Group's half-year report reads like two different companies stapled together. The top line belongs to a business in recovery: revenue of CHF 3.12 billion ($3.84 billion), up 2% as reported and 9% at constant exchange rates, with watches and jewelry contributing CHF 2.95 billion. The regional detail is better still. The United States gained 27%, Japan 20%, Spain 28%, Italy 12%, South Korea 12%, and China including Hong Kong and Macau, the market whose collapse has defined the group's last three years, turned in growth of 9%.
§2The bottom line hasn't.
The bottom line belongs to a company still on the operating table. Net profit fell 6% to CHF 16 million ($19.7 million), which against CHF 3.12 billion of sales works out to a net margin of roughly half a percent. The seven-point gap between reported and constant-currency growth names the culprit: the Swiss franc, which converts foreign revenue into fewer francs while the group's cost base, factories, watchmakers, headquarters, stays resolutely Swiss and resolutely franc-denominated.
Net profit fell 6% to CHF 16 million ($19.7 million), which against CHF 3.12 billion of sales works out to a net margin of roughly half a percent.
The group, which owns Omega, Tissot, Longines and Harry Winston among seventeen brands, chose to lead its outlook with momentum rather than margin. It anticipates stronger growth in the second half, citing "stronger sales in May and June, which continued into the first weeks of July". New product launches and improved retail efficiency get credit for the positive results; high-potential markets, India, Mexico, Saudi Arabia, are singled out for particularly strong gains.
§3The export tape agrees.
The report lands three days after the federation's June export data showed Swiss shipments up 11.2%, with the US and UK both up double digits, and confirms what that tape implied: the demand turn is real, broad and accelerating into July. What the export numbers could not show, and Swatch's accounts do, is how little of that demand survives the journey from Geneva showroom to Biel income statement when the franc is this strong.
Nine percent constant-currency growth is a genuine recovery; sixteen million francs of profit is a rounding error wearing a suit. The group is effectively running the world's most prestigious watch factories at break-even and calling it a turnaround, which it is, but only in the way that a patient sitting up in bed is a recovery.
The China number is the one to keep: if 9% growth there holds through the second half, the margin will follow. If it doesn't, the franc will still be Swiss.
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