By John Revill
ZURICH-- Swatch Group AG expects to increase its sales and
profit this year despite reporting 27% lower profit for 2014 as it
battles pressure from the recent surge in the value of the Swiss
franc.
Biel-based Swatch, the world's largest watchmaker, will increase
product sales, raise prices and reduce costs in 2015 to counter the
impact of the currency's spike, said Chief Executive Nick
Hayek.
The Swiss currency surged around 20% in value against the euro
after the Swiss central bank scrapped a long-standing cap on the
franc on Jan. 15, reducing the value of sales made by Swiss
companies in the eurozone and putting pressure on
profitability.
Swatch, which makes Tissot, Longines and Omega watches, had 138
million francs ($148.83 million) shaved from its sales during 2014
by the high value of the franc.
The franc at its current level would have reduced 2014 revenue
by 750 million francs, Mr. Hayek told The Wall Street Journal.
The company would increase its sales to compensate, Mr. Hayek
said, while it got less than 20% of its sales in euros.
"We then looked at how much sales we would have to get the same
profit as before, and worked out it would only be 200 million
francs to 250 million francs more," said Mr. Hayek. "That would
wipe out the losses from the national bank's move."
That figure would be achieved without price increases or cost
reductions, Mr. Hayek said, although both those measures are now
under way.
Swatch has increased the price of some watches, including its
Blancpain, Breguet and Omega lines, by 5% to 7% in Europe to
protect profitability and didn't rule out further price rises later
in the year.
"We definitely plan to grow much more than 200 million francs to
250 million francs," he said. "We even expect to make more profit
in 2015," Mr. Hayek said, without being specific.
He was speaking after Swatch reported that 2014 net profit fell
to 1.42 billion francs from 1.93 billion francs a year earlier. The
figure missed analysts' expectations of 1.48 billion francs.
Gross sales, which don't include rebates given back to
retailers, increased 4.6% to 9.22 billion francs from 8.82 billion
francs a year earlier, beating forecasts of 9.05 billion
francs.
Swatch's profitability fell as the company stepped up its
investment in marketing, particularly around the Winter Olympics in
Sochi and sponsorship deals with golf and other sporting events. It
has also expanded its own boutique network, including spending
around 400 million francs on a landmark location in Zurich's swish
Bahnhof Strasse.
Mr. Hayek said the company would continue to invest in
production, marketing and new boutiques, as it tries to build
market share.
"There are three markets where we see massive growth
potential--the U.S., mainland China and Japan," he said.
Swatch said January had started "very auspiciously" and the
company expects to generate high single-digit growth in the local
currency during 2015.
"January was fantastic in local currencies and it was not even
bad in francs," said Mr. Hayek.
Analysts were more skeptical however. "Today's significant
earnings miss...might put further pressure on the shares," said
Thomas Chauvet, at Citi, who said the guidance of high single-digit
sales growth was unrealistic as he expects total Swiss watch
exports to grow at a lower rate of 5%.
Write to John Revill at john.revill@wsj.com
Access Investor Kit for The Swatch Group AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CH0012255151
Access Investor Kit for The Swatch Group AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8701231065