Watches of Switzerland stock jumps on Q2 recovery, reconfirmed FY25 guidance

Investing.com -- Shares of Watches of Switzerland (LON:WOSG ) jumped over 10% on Thursday following its half-year results for FY25, which, despite a modest miss on revenue and EBIT, showcased a strong recovery in Q2. 

The company also reconfirmed its full-year guidance, signaling confidence in its trajectory as it navigates challenging market conditions and currency fluctuations.

The group reported revenues of £785 million for 1H25, marking a 4% increase at constant currency but falling 2% short of consensus expectations. 

EBIT came in at £66 million, missing forecasts by 7%, due to higher-than-expected overhead costs. 

However, analysts at RBC Capital Markets noted that the miss was largely expected due to one-off impacts in Q1, including a temporary increase in showroom stock for Rolex, which has since normalized.

Watches of Switzerland delivered a sequential improvement in quarterly revenue growth, with a sharp turnaround from a 2% decline in Q1 to an 11% increase in Q2. 

The US market, which accounted for £355 million in revenue, outperformed expectations, growing 24% in Q2 after a challenging first quarter. 

The UK market, while still down 1% year-on-year at £430 million, turned positive in Q2, signaling recovery in a key region.

The Luxury Watches category, which is the cornerstone of Watches of Switzerland’s business, saw a 2% decline in constant currency revenue. 

However, Luxury Jewellery revenues surged by 103% when including the contribution from recently acquired Roberto Coin, offsetting the category's 6% decline on an organic basis. 

The integration of Roberto Coin has been well-received and is seen as a key driver of future growth.

Gross margins remained steady at 36.2%, aligning with consensus, while the EBIT margin contracted slightly due to increased overhead costs. Net debt rose to £120 million, reflecting higher inventory levels, which increased by 20% year-on-year ahead of peak trading.

The company's decision to maintain FY25 guidance was a key factor driving the stock's rally. The company reiterated its revenue target of £1.67 billion to £1.73 billion, with EBIT margin expansion of 20 to 60 basis points.

Analysts at RBC Capital Markets and Jefferies pointed to the Q2 recovery and current trading momentum as evidence of improving trends, which lend credibility to the guidance.

The confirmation comes despite challenges posed by the appreciation of USD/GBP , as the US market contributes 45% of group revenues. Free cash flow of £28 million, alongside improved trading in both the US and UK, has further strengthened investor confidence.

Source: Investing.com