FALCON POWERS – The Swiss watch group Swatch recorded a decline in its profits during the first half of the year due to the crisis in the luxury goods market in China, and the company warned on Monday that the difficulties in its main market will continue for the rest of the year.
Profits fell by 70.5% compared to the same period last year, reaching 147 million Swiss francs ($164 million), with a 14% drop in sales to 3.4 billion francs. Swatch, known for its colorful plastic watches, and which owns several luxury brands including Longines, Omega, and Tissot, said the decline in demand for premium products has affected its performance.
The company pointed out that the decline in sales “was due to the sharp drop in demand for luxury goods in China,” including Hong Kong and Macau.
Analysts polled by the Swiss financial news agency AWP had expected much higher net profits of around 354 million francs.
Swatch shares fell 9.3% by midday on Monday, while the Swiss SMI index rose 0.4%.
Bernstein analyst Luca Solca said in a note to clients that “the Swatch Group is the most exposed to Chinese middle-class consumers, who have clearly cut their consumption.”
Luxury companies are feeling the brunt of the worsening economic pressures in the world’s second-largest economy, as Burberry announced the departure of its CEO on Monday after reporting “disappointing” financial results, mainly due to weak performance in China.
