SWGAY Swatch Group AG (PK)

By Brian Blackstone 

ZURICH-- Swatch Group on Thursday reported a plunge in profit for 2016 and slashed its dividend, underscoring how shaky consumer confidence around the world and weakness in important markets such as Hong Kong have taken their toll on the Swiss watch industry.

Switzerland's luxury watchmakers endured a tough 2016 as exports plunged in part because of weaker demand from Asia and concerns about terrorism reduced tourism to Europe. However, analysts have flagged a more stable year in 2017 partly thanks to better economic growth.

Swatch's full-year figures reflected the troubles of 2016, with net profit tumbling 47% to 593 million Swiss francs ($597.1 million) on revenue down 11% to 7.55 billion francs. Swatch cut its dividend to 6.75 francs a share from 7.50 francs in 2015.

Last year "was not a winning year for Swatch on all the numerical metrics," said analysts at Bernstein, noting that the company undershot the earnings-per-share consensus by about 12%.

Shares in the company fell 3% in early trading.

The company, known for its inexpensive plastic watches but also owner of luxury brands including Omega, Blancpain and Breguet, blamed a series of shocks including terrorist attacks that depressed tourism in Europe, the high Swiss franc, more stringent visa rules that affect Chinese tourism and sanctions imposed on Russia.

"Due to the terrorist attacks in France and Belgium, tourists were largely absent, which led to declining figures, the same was also partially the case in Germany and Switzerland with its ongoing high Swiss Franc," Swatch said.

In contrast, the weaker pound since the U.K.'s vote to leave the European Union in June led to higher sales in the U.K., Swatch said, though the strong franc weighed on the margins when those revenues were translated into francs.

Still, the company pointed to improved conditions in recent months and offered a brighter outlook for 2017. "The months of November, December and January showed, particularly in mainland China, very good growth in the watches and jewelry segment, with a substantial improvement in operating margin," Swatch said.

"Based on the positive development of the last three months, healthy growth is expected for the year 2017," it said.

Swatch's Swiss rival, Cartier owner Cie. Financière Richemont SA, said last month that its nine-month sales through December were down 7% from the previous year, though like Swatch it said sales improved in the last three months of 2016.

Richemont took aggressive steps last year to counter slumping sales, buying back unsold Cartier watches and eliminating the post of chief executive in a management shake-up.

Swatch, however, didn't buy back unsold inventory. "Why should we? Our products are not food products that have a date of expiry," a company spokesman said in December.

"Management has reiterated that Swatch is an industrial company focused on maintaining production volumes; however, we see a disconnect between this strategy and current slower demand in the watch industry," Bernstein analysts said.

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

(END) Dow Jones Newswires

February 02, 2017 04:11 ET (09:11 GMT)

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