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Speedmaster luxury wristwatch, produced by Omega, a unit of Swatch Group AG. Photographer: Stefan Wermuth/Bloomberg

(bloomberg)

(Bloomberg) -- Swatch Group AG, the largest Swiss watchmaker, is boosting headcount and inventory to record levels to keep up with accelerating demand across its portfolio of 18 brands.

Swatch hired more than 800 employees in the six months through June and has been stocking up on gold and diamonds, lifting inventory to a record 6.7 billion francs ($6.7 billion), the Biel, Switzerland-based owner of Harry Winston and Tissot said as it reported first-half profit that beat estimates.

Double-digit sales growth is possible this year, according to Chief Executive Officer Nick Hayek, who has been aiming for a high-single digit percentage increase. Swatch is benefiting from renewed appetite for luxury timepieces in China and Hong Kong after the industry cut thousands of jobs in past years due to a downturn. Of late, even the low-end segment, which had been suffering due to competition from the Apple Watch, has been showing signs of a rebound.

Swatch had 36,200 employees at the end of June, near the record level set in 2015. The stock fell 0.7 percent to 470.40 francs as of 11:40 a.m. in Zurich, having gained 18 percent this year.

“Demand is so high,” Hayek said. “We have bottlenecks in many areas,” he added, pointing to dials, extra-precise Longines quartz timepieces and Swatch Skin Irony watches, a thin steel version of its namesake brand.

Trade Disruption?

The company said the 6 percent increase in inventory was fueled by purchases of gold and diamonds, and is justified in the event a trade war would disrupt key supplies.

“A rich inventory level is a prerequisite for healthy growth,” Swatch said. “In view of the turbulence in global trade with the introduction of punitive tariffs, it is strategically even more important to increase stocks of essential raw materials.”

Wholesalers have also spurred demand by ordering again since the end of last year after a period of being too reluctant to buy stock, Hayek said, adding that sales of Harry Winston keep growing at a double-digit pace.

“The increase in gold and diamonds makes sense as jewelry, at Harry Winston, but also high-end watches, like Breguet, Blancpain and Omega, have high growth,” said Rene Weber, an analyst at Bank Vontobel AG.

Swatch said all its brands, including middle- and lower-end watches, showed an acceleration in sales, and that the positive trend continued in July. The company forecast strong growth and further market-share gains in the second half.

The company didn’t increase its store count in the first half, instead closing some to reopen them in better locations. Wholesale is benefiting as retailers restock, Hayek said.

Operating profit rose 70 percent to 629 million francs, beating analysts’ expectations for 612 million francs.

To contact the reporter on this story: Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Thomas Mulier, John J. Edwards III

©2018 Bloomberg L.P.

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