FTSE 250-listed Rolex retailer Watches of Switzerland Group PLC (LSE:WOSG)’s second-quarter results come at a testing time for the European luxury sector.
Luxury stocks have underperformed in the latter half of 2023, with Louis Vuitton Moet Hennessy (EPA:MC), L’Oreal and Hermes losing some $270 billion in market value since April.
On top of slowing demand for status symbols, WoS is facing another threat: Swiss watchmaking giant and WoS’s hero product Rolex has ventured into direct competition with WoS following its acquisition of Bucherer, a leading Swiss watch retailer.
WoS contended that it was not a strategic move to muscle into WoS’s retail footprint, though analysts remain unconvinced. As are shareholders, who tossed WoS shares 30% lower following Rolex’s surprising announcement in August.
WoS sells more than just Rolex watches, but these developments are undoubtedly going to be front and centre of Tuesday, 7 November’s results.
Jefferies calls WoS a “serial share grower”, though analysts said it will “take time to reassure” on the Rolex developments.
Regardless, Jefferies expects a reiteration of full-year sales guidance of between £1.65 billion and £1.7 billion, while low double-digit market share in the US should allow the group “to more sharply outperform a subdued environment”.
Shareholders will be eager to hear what WoS has to say about further US growth opportunities as part of its long-range plan.
US sales have grown from 33% to 42% in the space of two years, but this is also the jurisdiction most exposed to Bucherer competition.
A signing off of Rolex and other key suppliers will be of utmost importance for stakeholders, reckoned Jefferies.
Shore Capital Markets is also wary of WoS’s US future performance.
“We are less bullish on the US, with our expectation of softer luxury demand, the continued downward trend in the secondary market, and slower store opening all weighing on US revenues,” said ShoreCap analysts.
The second quarter “is likely to be weak whichever way it is balanced”, they said, “but the market knows that, and all eyes should mainly be focusing on the update to the long-range plan”.
Speaking of which, news on the progress of the Old Bond Street Rolex flagship boutique, which is due to open in the Summer of 2024, will also be welcomed.