SWGAY Swatch Group AG (PK)

By Brian Blackstone 

ZURICH-- Swatch Group AG said Thursday that profit and sales fell sharply in the first half of the year, confirming last week's profit warning amid a challenging global economic environment for luxury goods companies.

Still, the Swiss watchmaker said it expects "clear growth" in the second half of the year and that "in the mid to long term, there are many more opportunities than risks."

Swatch said net profit plunged 52% from a year earlier to 263 million Swiss francs ($266.4 million), while net sales fell 11% to 3.7 billion Swiss francs ($3.75 billion) at current exchange rates.

Analysts were warned on Friday that sales and profitcautious about the outlook for the rest of the year, with Morgan Stanley noting a mix of high inventories and weak sales. "We expect investors will take a cautious view of relatively positive commentary for [the second half 2016] outlook given a lack of visibility across luxury peers," Morgan Stanley analysts wrote.

Separate data on Swiss exports Thursday underscored the challenges facing the watch industry. Exports in the sector fell 16% in June from the previous year. "This reflects elevated inventory levels within third-party distribution in Asia and a cautious mood amongst watch retailers given challenging economic conditions in [emerging markets], stock market and FX volatility, travel fears after terrorist attacks in Europe and depressed oil prices," wrote analysts at Citi.

Swatch had warned on Friday that sales and profit slid during the first half of 2016 citing weaker sales in key markets such as Hong Kong and Europe. In response its shares fell sharply lower amid concerns the luxury-goods sector faces major headwinds in an uncertain global economic environment.

Biel, Switzerland-based Swatch is known not only for its cheap plastic watches but also its more expensive brands, including Omega, Blancpain and Breguet. The watchmaker sounded an upbeat tone Thursday, citing "clear improvement" in mainland China, a "strong July start" in the U.K. and "clear signs of a tourism revival in parts of Europe, mainly in Spain and Italy."

The company's shares were up 3.5% midday Thursday in Europe, recouping some of last week's steep losses.

The company said the Rio Olympics should give a "worldwide boost" to Omega, which is the official timekeeper for the Olympics.

In a research note, analysts at Baader Helvea Equity Research said "given continued weakness in Europe and the group's continued focus on topline growth, we are cautious at first glance on a quick profitability recovery."

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

(END) Dow Jones Newswires

July 21, 2016 07:51 ET (11:51 GMT)

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