Swatch shares were hammered on Monday after first-half results laid bare the impact of tumbling Chinese demand for discretionary and luxury goods.
Group-wide sales fell more than 14% compared to the previous year’s first half, with Swatch laying the blame on poor sales in the important Chinese market.
Management warned that the Chinese market (including Hong Kong SAR and Macau SAR) will “remain challenging for the entire luxury goods industry until the end of the year”, although the region’s potential “remains intact”.
Although the jewellery and watchmaker cited optimism in the US and Japanese markets, Swatch’s fortunes rest heavily on China’s shoulders.
China is easily Swatch’s largest market, comprising a third of all global sales (per the group’s 2023 annual report).
Unfortunately, the latest economic figures emerging from the world’s second-most-populous country will have done little to assuage Swatch management’s fears.
China’s economy grew far less than anticipated between April and June, marking the slowest quarter of growth since the first quarter of 2023.
Following the disappointing financial results, Swatch shares crumbled more than 9%.
Luxury stocks feel the pinch
While Swatch is one of the most China-exposed companies among the luxury set, it is not alone in feeling the pressure.
British luxury label Burberry is showing few signs of recovery, having suspended its dividend after reporting first-half losses, due in no small part to a 21% decline in mainland China sales.
Burberry shares crashed 18% in response to the troubling earnings report.
Deutsche Bank analysts highlighted “the further deterioration” in mainland China sales expectations as a problem, not just for Burberry and Swatch, but also for other luxury stalwarts like LVMH and Gucci owner Kering.
Luxury stocks were down across the board this Monday, with LVMH, which is Europe’s most highly valued company, down 2.6%, Kering down over 5% and Richemont off by 3.6%.