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The Swatch logo and numerals sit on a wristwatch face inside a watch store, operated by Swatch Group AG, in London, U.K.(bloomberg)
(Bloomberg) -- Swatch Group AG reported an increase in profit for the first time in four years as Switzerland’s largest watchmaker boosted its share in the intensely competitive low-end timepiece market thanks to growth at Tissot and its namesake plastic brand.
Swatch said it has had a “massive gain” in market share in the basic and midrange segments. The company sells about two-thirds of the Swiss watches that wholesale for less than 200 francs ($213), according to Chief Executive Officer Nick Hayek. The stock rose as much as 3.8 percent in early trading.
The Biel-based watchmaker, whose midrange brands include Calvin Klein and Hamilton, is trouncing competitors as Switzerland’s exports of quartz watches slumped to a 33-year low in 2017. As Apple Inc. has catapulted itself into the position of the world’s largest watch brand, the bottom has fallen out of the low end of the industry, which has also been struggling with the strength of the Swiss franc.
“In the low market segment in general, the margins went away,” Hayek said in a phone interview. “You cannot increase prices. There is a real problem. But this is not the case for Swatch Group.”
The CEO said all of Swatch’s price segments are growing. Low-end watches usually run on quartz mechanisms, which require batteries. Higher-end watches are typically automatic, fueled by the motion of the wearer’s wrist.
“Mechanical watches are picking up,” Hayek said. “The upper segment is booming. People like products that have no batteries.”
Omega is on track to eventually reach 3 billion francs in annual sales, while Longines is approaching 2 billion francs and Tissot has surpassed 1 billion francs, Hayek said.
“Swatch Group is probably winning share in the low end from traditional quartz players who are exiting the segment,” said Jon Cox, an analyst at Kepler Cheuvreux. “In the high end it is probably gaining ground in wholesale channels as other players are reducing doors.”
Harry Winston could reach 1 billion francs in sales within three to four years, Hayek added.
Operating profit for 2017 rose 25 percent to 1 billion francs, the Biel, Switzerland-based company said in a statement Tuesday. Analysts expected 990 million francs.
Sales increased to 7.96 billion francs. Excluding currency swings, the growth was 5.8 percent, surpassing the analyst consensus compiled by Bloomberg of 4.5 percent growth.
“High-single-digit growth at constant rates, this is the ambition that we have for the year,” Hayek said of Swatch’s sales outlook.
In the U.S., Swatch Group is still trying to reach an agreement with Amazon.com Inc. to boost online sales, though the U.S. company isn’t agreeing on a clause that it should make its best efforts to fight sales of counterfeit products, Hayek said.
“It’s in their own interests,” he said. “Amazon wants to know it’s a real product for their consumers.”
(Updates with shares in second paragraph.)
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