SWGAY Swatch Group AG (PK)

By Brian Blackstone 

ZURICH-- Swatch Group AG warned Friday that sales and profit slid during the first half of 2016, sending its shares sharply lower and suggesting that the luxury goods sector faces major headwinds in an uncertain global economic environment.

The Biel-based company, which is known not only for its cheap plastic Swatch watches but also its more expensive brands, including Omega, Blancpain and Breguet, said its net sales are expected to have declined 12% in the first half of 2016 compared with the same period in 2015, due to weaker sales in key markets such as Hong Kong and Europe. It also said that profit likely fell by 50-60%.

The decline was "obviously due to the decrease in sales but also to the tradition and the industrial long-term philosophy of the Swatch Group to consider its employees not just as a cost factor but to keep them...to maintain investments in new products and marketing and to pursue a defensive price increase policy," Swatch said in a statement.

In addition to Hong Kong, the company cited weakness in France and its home market, Switzerland, though is said that developments in mainland China were positive.

Swatch said it would release details of its first-half results on July 21.

"It has to be seen what reactions the company will announce next week, but estimates will see a marked reduction and investors confidence will be shaken," wrote analysts at Vontobel.

Swatch was the biggest decliner by far among major Swiss companies. At 0830 GMT, its share were down 11% after plunging nearly 13% in early European trading.

Shares in other luxury goods companies were also down. Richemont--the Geneva-based owner of Cartier jewelry and watchmakers including IWC, Piaget and Jaeger-LeCoultre--saw it share price fall nearly 3.5% in early trading.

"The weak set of figures were widely expected, however, more severe in magnitude," said analysts at Baader Helvea Equity Research, in a research note referring to the Swatch warning.

"Only the full-set of figures will give the picture to what extent the figures include one-offs," they added.

Swatch receives around 45% of its sales from high-end brands like Omega, which retail for more than $7,000, and 20% from its upper-end brands like Longines and Rado, which sell from around $1,200.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

July 15, 2016 05:03 ET (09:03 GMT)

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