Swatch profit plunges 75% on China sales; cautious optimism remains

Investin.com -- Swatch Group’s (SIX:UHR) annual report, posted on Wednesday, reported a 75.4% net profit plummet in 2024, down to CHF 219 million from CHF 890 million, due to weakening consumer demand in China which heavily weighed on the Swiss watchmaker’s financial performance.

Sales in Greater China, one of its key markets, declined sharply to CHF 1.83 billion from CHF 2.63 billion, driving an overall revenue drop to CHF 6.74 billion from CHF 7.89 billion in 2023.

Chair Nayla Hayek acknowledged the challenges, stating, "Last year presented major challenges to all of us and to Swatch Group. Despite an unfavorable global economic environment and, in particular, weak consumer spending in China, we stuck to our strategy of safeguarding jobs and maintaining full and unrestricted capacity utilization at our production sites."

She added, "We decided to protect and support the strengths and the soul of Swatch Group: our employees, our know-how, and our production. This has, of course, impacted our profitability; however, the Group is so solid – particularly with an equity of 87.3% – that we can afford to do this."

The operating result fell to CHF 304 million, down from CHF 1.191 billion in 2023, while the operating margin declined to 4.5% from 15.1% the previous year. 

The net profit margin narrowed to 3.3%, from 11.3%, while earnings per share also saw a drop, with registered shares yielding CHF 0.75, compared to CHF 3.35 in 2023. Bearer shares earned CHF 3.74, down from CHF 16.76.

Despite struggles in China, Swatch Group saw strong sales in the United States, Japan, India, and the Middle East. Tissot crossed the $100 million sales milestone for the first time in the U.S., while Omega, Longines, and Harry Winston performed well in Japan.

Swatch Group’s Watches & Jewelry segment, its largest revenue driver, saw sales drop from CHF 7.546 billion to CHF 6.418 billion. 

The Electronic Systems segment reported sales of CHF 330 million, a 7% decline at constant exchange rates. Operating profit for this division also fell to CHF 12 million from CHF 27 million.

The company maintained an equity ratio of 87.3%, though cash and cash equivalents declined to CHF 1.097 billion from CHF 1.616 billion in 2023. 

Net liquidity was reported at CHF 1.376 billion, down from CHF 1.988 billion, while inventory levels rose to CHF 7.641 billion from CHF 7.309 billion. 

Cash flow from operating activities fell 45.9% to CHF 333 million from CHF 615 million in the previous year. Capital expenditure stood at CHF 568 million, down from CHF 803 million in 2023.

The Board of Directors has proposed a dividend reduction, recommending CHF 0.90 per registered share and CHF 4.50 per bearer share, down from CHF 1.30 and CHF 6.50, respectively, in the previous year. The total dividend payout is expected to be CHF 235 million.

Hayek expressed optimism, saying, "We see encouraging signs, and with the solid industrial foundation we have maintained, we are ready to take advantage of the many opportunities on the horizon. Swatch Group expects substantial improvements in sales, operating profit and cash flow in 2025."