Watches of Switzerland Group Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
December 5, 2024

There are 16 speakers on the call.

Operator

Conversion rates. Sales of Roberto Coin are strong in the U. S, and the integration of the business is progressing well. We're very active on developing plans for future growth of this great brand. Pre owned, both Rolex certified pre owned and other brands, is providing accelerated growth in line with our plans and expectations.

Operator

The integration of the recently acquired Houdini business is underway, and we are working on some exciting growth plans with the teams there. We have a strong pipeline of major projects impacting particularly H2, as well the projects completed during H1. The holiday season has started well, with November sales in line with our growth expectations. And we are pleased, therefore, to confirm our previously announced guidance for the year remains unchanged. Our revenue mix has changed quite significantly in the past 5 years.

Operator

As shown in the first pie charts, the share of our sales in the U. S. Has moved from 24% fiscal year 2019 to 45% in H1 of FY 2025. And following the removal of tax free shopping in the U. K, our sales have been predominantly to domestic clients at 94% of the total in H1 FY25 compared to 67% in FY19 as shown in the 2nd pie charts.

Operator

We are very proud of our success in the US, and the teams there under the leadership of David Hurley have done a fantastic job. Through the last fiscal year, sales had grown to $870,000,000 from $120,000,000 in fiscal year 2018, and we are planning a further impressive growth in fiscal year 2025. As shown in the boxes below each year, growth has come from a number of incremental projects and acquisitions, in addition to a program of sustained showroom investment and enhanced client experience. This chart shows our product split, with luxury watches in total changing very little from 81% in fiscal year 2019 to 82% in H1 fiscal year 2025. The top 8 luxury watch brands shown represent 71% of the sales in H1 FY 2025.

Operator

Jewellery sales have increased and this time to 12% mix following the acquisition of Roberto Coin Inc. This chart shows some new information from analysis of the Watchlist Switzerland Group client databases in the UK and the U. S. We show the spud of sales by client frequency from clients buying only 1 to 2 watches since January 2020 to those serious collectors who have purchased more than 7 watches in that period. Of course, clients may have shopped with other retailers during this time, and we do not have comparable other market statistics for this data.

Operator

However, we believe that we outperformed the market on both the category 1 shopper buying infrequently, representing 45% of our sales in the UK and 30% of our sales in the US, and the category 4 series collectors representing 26% of sales in the UK and a very significant 45% of sales in the US. Some other new information for you from a survey of UK clients, which shows a clear preference of multi brand shopping at 70%, more than 2 to 1, compared to 30% mono brand preference. And of these clients, 84% confirmed the importance of independent advice and expertise such as provided in our showrooms by our great colleagues. In 2024, we celebrate 100 years of the Watches of Switzerland brand that first opened in Ludgate in London in 1924. We are celebrating this milestone with a series of stunning exclusive timepieces from our brand partners, as shown here.

Operator

We've completed some great projects this year with many more to come, including important developments with Patek Philippe, Audemars Piguet, and Rolex. In August, we opened this great expanded showroom for Patek in Greenwich, Connecticut. Clients love the new 2,000 square foot space, and many enjoyed the opening event. We are making great progress with the Audemars Piguet townhouse in Manchester, which will open in April next year. This will be the 1st Audemars Piguet townhouse in the UK outside of London, and our 1st joint venture with AP.

Operator

We have a number of great projects with Rolex, including a relocation to a much larger store in Tampa, Florida, a return to Jacksonville, Florida to a completely new location, doubling the size of the Betteridge Vail showroom with a beautiful alpine design, and a new Rolex agency in a relocated showroom in Plano, Texas. And then in February, we will open this amazing Rolex boutique in Lenox, Atlanta, which is a conversion of the previous Mayer store into a 3,000 square foot Rolex flagship. In March, we will open this stunning statement of a Rolex Flagship in Bond Street, London. Four floors and over 6,000 square feet of retailing, including a service lounge and a dedicated pre owned floor. The Watches of Switzerland Group has managed the Rolex Bond Street boutique since the early 1970s.

Operator

In the UK last month, we opened this beautiful Watches of Switzerland showroom in Fenshark Street, London, which was a conversion from mapping and web expanding from around 1200 Square Feet to over 5,800 Square Feet. In a relatively short period of time, Rolex certified pre owned has become an important and established part of our business and now is our number 2 brand. Additionally, other pre owned has grown significantly too. Rolex CPO is now in 19 Rolex showrooms in the U. S.

Operator

And 24 in the U. K. And other CPO is traded in 16 showrooms in the U. S. And 30 showrooms in the U.

Operator

K. Our scale systems and showroom networks all provide substantial competitive advantages in this sector. Sales are in line with our growth plan expectations. Procurement, servicing, etcetera are all and we look forward to the implementation of in store furniture and window displays, which will further accelerate growth. Luxury branded jewelry is a large and growing market.

Operator

The market has been and continues to trend towards brand preference versus commodity. We believe that we have a significant growth potential in this category, and we have developed a number of key plans. The acquisition of Roberto Coin in North America, a concept of dedicated luxury branded jewelry showrooms, the first of which will open in Manchester. Expanded jewelry spaces and showroom developments, a focus on ecom, and importantly, the introduction of and expanded distribution of the international luxury brands shown here. We love the Roberto Koine brand, and we have formed a great collaborative partnership with the teams at Roberto Coin in both Vicenza and New York.

Operator

There's been no disruption with wholesale partners in the U. S, and we are now fully active on retail store locations, retail store design, new shop in shop design, and a new advertising campaign. We have also initiated department store concession discussions. We already had planned space expansions for the Roberto coin brand in Mayors, which was previously only Encounter Presentations. The increased sales and productivity from the elevated and larger spaces has been excellent.

Operator

And then in summer, we will open this first of a kind dedicated luxury Jewellery showroom in Manchester. For many brands, this will be the first time being distributed outside of London. This includes the launch of the David Yurman brand in the UK. The David Yurman brand is a major player in the US, and we're delighted to bring this great brand to our country. Client experience is our number one focus.

Operator

Our team manage a full and varied events calendar, including, for example, a recent special MAP and Web event at the Town of London with the Crown Jeweller. We are using special 3 d cameras to support our virtual boutique team with online shoppers. Conversion rates from our virtual boutique operation are excellent. Our newest business is Honenky, and the integration to date has gone well. We feel very positive about the prospects from adding this globally leading authority on luxury watches to our group and the potential to develop online sales and advertising revenues.

Operator

And finally, our group has always had an active focus on all ESG matters. We have a program of employee engagement, and we were delighted to be certified as a great place to work earlier this year. On the environment, we are active on continually improving our footprint, emphasizing the circularity of Swiss watches through increased servicing resources and expanding pre owned sales. We have consistently supported our foundation and developed great partnerships around our foundation's objectives of alleviating poverty and promoting education. We have a super group of trustees who willingly give their time to the foundation.

Operator

And now I'll pass over to Anders.

Speaker 1

Thank you, Ryan, and good morning, everyone. I'm Anders Romberg, CFO for the group, and I'll now take you through the financials. Our first half performance was in line with our expectations. As planned, our Q1 was impacted by the stock builds, particularly in the U. S.

Speaker 1

Trading has improved sequentially in the Q2 and early holiday trade in November has been good. Our full year guidance remains unchanged. Our first half sales were plus 4% to last year at constant currency. With a stronger second quarter, the UK improved sequentially from its FY 'twenty four exit rate with sales down 4% in the Q1 and plus 2% in the second quarter. U.

Speaker 1

S. Was down 1% in the 1st quarter from anticipated stock builds and plus 24% in constant currency in the 2nd quarter, taking the first half to plus 11%. I'll now take you through the income statement. This is presented on the pre IFRS 16 basis. The reconciliations to the statutory numbers are included in the R and S.

Speaker 1

On a reported basis, sales for the half were plus 3%. Net margin for the half was 60 basis points down on last year, reflecting adverse product mix due to the higher increase of pre owned. Adjusted EBIT of CAD 66,000,000 achieving a margin of 8.4%. This was 120 basis points down on prior year due to the net margin rate decline and the deleverage of fixed cost. Finance cost increased by $5,800,000 to 7,300,000 following the drawdown of funds for the Roberto coin acquisitions.

Speaker 1

The effective tax rate was 28.4 percent for the half, exceeding the standard UK rate due to higher chargeable taxes on U. S. Profits. Adjusted EPS was 18.1p, a decline of 16% on prior year. Moving to the balance sheet, the increase in goodwill relates to our acquisitions of Roberto Cohen, Hodinke and Ernest Jones showrooms in the last year.

Speaker 1

Our inventory increased to $477,000,000 an increase of 19% versus last year, reflecting the Roberto Coin and Ernest Jones showroom acquisitions. Underlying inventory turns are good. It is important to remember that there is no obsolescence risk in our inventory and very low cost of storage. Receivables is all driven by the timing of seasonal trading in Roberto Coin. Net debt was SEK 120,000,000 at the end of the half, and I'll take you through that the key points on the next slide.

Speaker 1

Our leverage at the end of the half was 0.7 times EBITDA. On the cash flow, adjusted EBITDA was $87,000,000 The working capital outflow of $42,000,000 represents the seasonal build of stock for strong holiday seasons and timing of receivables of Roberto coin. We expect the working capital build to unwind in the second half. I'm expecting the full year free cash flow conversion to be in line with our guidance of circa 70 percent. We continue to invest in our showroom expansion and refurbishment program.

Speaker 1

Our expansion plans has been more front end weighted and we expect capital spend to be lower in the second half, reflecting full year guidance of €60,000,000 to €70,000,000 We spent €107,000,000 on the acquisitions of Roberto coin and Hodinci, financed by a new $115,000,000 term facility agreement to maintain flexibility. Today we are reiterating our full year guidance. Guidance is based on visibility we have of supply for key brands. It reflects confirmed showrooms, refurbishments and openings and closures, but it excludes uncommitted M and A and is based on a second half average rate of 1.26 dollars to the pound. With that, I will hand you back to Brian.

Speaker 1

Thank you.

Operator

Thanks, Anders. And so to summarize, the markets today have settled down and we are gaining share and improve market conditions. We love the Roberto coin brand. Sales are good, and we are very optimistic of future growth potential. Pre owned is performing as planned and growing well year on year.

Operator

And the current and recent momentum, the visibility of product intake and the projects that we have planned all underpin our H2 expectations. And so our previously announced guidance remains unchanged. And just before we turn to Q and A, I mentioned our accreditation as a great place to work. Here's a little video of what our colleagues think.

Speaker 2

What makes The Watches in Switzerland Group a great place to work is definitely the people. I'm surrounded by driven, passionate individuals that make me do my best work every day.

Speaker 3

My favorite thing about working here, I guess, is that anytime I walk in, I feel like, walking into a family house.

Speaker 4

What makes us a great place to work is our community, our people, and the work that we do through our foundations to support everyone around us.

Speaker 5

Every client that I meet that comes through the door is from a different aspect of life or a different part of the world. And it's just engaging with that and seeing that and meeting those people. So that's what I look forward to. I've got a great boss who really trusts in me, trusts in the rest of the team to do the right thing and create some nice story.

Speaker 2

For me, working at the Watchers Switzerland Group is more than just a job. It's a community about growth, successes, and being together.

Speaker 6

We will take our first question from the line of Akshay Gupta from HSBC. Please go ahead.

Speaker 7

Hello. Thanks for taking my question. First question is on the U. K. So as per my calculation, your business in the U.

Speaker 7

K. Was still down 2% in Q2. Can you confirm that? And if that is the case, can you tell us what were the exit rates there? Just trying to understand if the U.

Speaker 7

K. Back to growth already. And second question is on capital allocation. So you've detailed the policy in the release where you've mentioned about a focus on strategic acquisitions. Can you tell us what kind of acquisitions you think would make sense from here?

Speaker 7

Could it still be in watches or you plan to continue to diversify towards jewelry? Thank you.

Speaker 8

Hi. So I'm not sure I caught all of the second part of your question there. But on your first part, the UK was plus 2 in Q2. So we can maybe with Andrew's talk offline and we can get through the numbers. But the U.

Speaker 8

K. Was plus 2%, had a good improving trend with the underlying business and good performance carried through to November. And here in the U. K. And in the U.

Speaker 8

S, all the season has started well. And excuse me, I didn't fully catch the second part of your question, if you wouldn't mind repeating.

Speaker 7

Yes. So what I was asking is about the capital allocation. So you've detailed the policy in the release where you mentioned about a focus on strategic acquisitions. So I wanted to understand what kind of acquisitions you think would make sense from here. Could it still be in watches or you plan to diversify more towards jewelry?

Speaker 8

No, we don't plan to particularly diversify towards jewelry. We obviously made the reversal coin acquisition. We were delighted to do so. We do think we're and we are hugely underrepresented in the category. So it remains a focus for us and we have various plans in place to address that and we think we can be bigger in jewelry.

Speaker 8

But our acquisitions to date have focused on the watch category, and that remains for sure our priority, retailers of that nature.

Speaker 6

The next question comes from the line of Louise Singlehurst from Goldman Sachs. Please go ahead.

Speaker 9

Hi, morning, Brian and Anders. Thank you for taking my questions. Just a couple for me, please. I think just listening to commentary and obviously reading the statement this morning, obviously, the word kind of optimism, much more positive tone. I think on the call, you've been talking a bit more about the or reminding us all about the visibility of the business.

Speaker 9

It sounds a much stronger position than what we've had in prior quarters this year. Can we just check on like the allocation of the product, particularly going to the important Christmas trading period, is in line with expectations and the brand's expectations in terms of both volume and value of product? And then my second question was just thinking a little bit more about this exit rate. There's obviously a lot more kind of positive discussion with regards to both the UK and the U. S.

Speaker 9

Q2 versus Q1. Is that more about the aspirational consumer and that weakness dropping out of the base? Or are you actually seeing a really good underlying momentum in more higher end product, particularly on focus on the UK? Thank you.

Speaker 8

Thanks, Lise. We do have good visibility of our intake from key partners and we have visibility. As of this year, we have units and value. So very confident about totally confident about the numbers that we've included for key brands and our forecast and our expectations for the year. Exit rates, we've had an improving trend and obviously, it's an important season that November December leading up till Christmas and it's been good and quite considerably better than last year.

Speaker 8

Here in the UK, in terms of the consumer mix, this time last year, the consumer group that was really reluctant to spend and really impacted by what was going on in the economy did include our aspirational consumer group regionally in the UK. They were dealing with high interest rates, the shock of high interest rates, if you like, and what it was costing them alongside what was a pretty significant increase in the price of the product in our stores. This year round, there's definitely a much better sentiment, I think, across the market and certainly with us and a much more propensity to spend, greater confidence all around. And probably the not probably, it's definitely the aspirational consumer in the UK that's returned and obviously are very well represented regionally and throughout the country. In case of the U.

Speaker 8

S, the market demand had remained strong continually. There has been a post election benefit as well, and we see that mainly in the high end. I think that maybe we are clients just holding back, which I think is very typical in the US holding back about waiting for the outcome of the election. But since then, particularly in high ticket items, we've enjoyed some really good transactions in business. And just the other thing I'd add to all is it's like this whole period, you know, the brands that we have predominantly on registration of interest lists, you know, remain so good conversion on the lists and good healthy maintenance of the list, if you like, names getting added more than those that we're managing to take off.

Speaker 9

That's really helpful. Thank you. Can I just ask one quick follow-up? The Bond Street Rolex flagship that opens in spring next year, can you remind us how many doors? Because if I'm correct in my memory, they are your Rolex has reduced the number of doors in that region.

Speaker 9

Is that correct? So you've got the one big flagship, which will take obviously the predominant market share?

Speaker 8

Yes. It will be the only Rolex point of sale on Bond Street. And I think appropriately for the size and status of what's going to be an amazing flagship store. Prior to you back a couple of years ago, there were 4 agencies. 2 of them were ours, by the way, I mean, one of them, we had the boutique there, but we had a small boutique and one that really didn't do justice to the wonderful brand of Rolex.

Speaker 8

So that one's migrating, I feel like, into this big new store with Mapping and Web in the corner and Rolex, we have other plans for that space. Rolex come out there and there was 2 other 3rd party retailers that are no longer there. So yes, there was 4 points of sale and company opening, which will happen in March, will happen hopefully in the first half of March. The store will be the only place you can buy Rolex and Bond Street.

Speaker 9

Brilliant. Look super exciting. Thanks very much.

Speaker 8

Yes. You're welcome.

Speaker 6

The next question comes from the line of Melania Grippo from BNP Paribas. Please go ahead.

Speaker 10

Good morning, everyone. This is Melania Grippo from BNP Paribas. I've got 2 questions. The first one is if you could please update on the exit from the European business. If you could remind us the timing of the exit?

Speaker 10

And the second one is on the CPO, if you could please tell us what it will present in terms of sales in both UK and US or any color you could give us on that? Thank you.

Speaker 8

I'll let Anders update you on both these. I should have said actually at the start of the call, I mentioned we've got David Hurley here too, President of Business in the U. S. And if any of you have any specific questions, then you should know that David's here and can answer. And we have Caroline Brown here as well.

Speaker 8

Anders?

Speaker 11

Yes. So in terms of the exit of EU, we're progressing really nicely. So the only two remaining points that we're still working through are in Copenhagen. The balance of it's either being closed we closed 2 stores, 1 in Berlin and 1 in Stockholm with 1 of the brands. The other brands have been taken over by the brand owners themselves.

Speaker 11

So the ones in Copenhagen are transitioning out hopefully in January. There was a landlord work that delayed that transition. Otherwise, that would have been done in the first half. So yes, on plan and obviously good for the brand, good for us. So everybody is happy.

Speaker 11

In terms of CPO, I mean, obviously, we're up over 50% in our pre owned business. We're really thrilled about the progress that we made in Rolex certified pre owned. And we're getting better and better at managing the logistics through the service apparatus, which is really something that's key in this sector. And we're super pleased with where we are. Penetration of the pre owned business in the first half was higher due to the stock rebuild that we had to do in the U.

Speaker 11

S, which adversely impacted our product margin. As we go into the second half of the year, obviously, we expect the more normalized mix in our business. So yes, we're very pleased with it.

Speaker 8

Yes. I'd just add a couple of things on the pre owned, but also doing really well with other brand pre owned business, that analog shift acquisition we made a few years back has always been great and this year a tremendous momentum of growth with them too. So the whole pre owned category was obviously Rolex as the rock and it is really growing extremely well. And I'd mention too, just come back to Louise's earlier question, we are going to have a whole dedicated floor in Bond Street to pre owned. So the availability in the presentation, I think, will be fantastic.

Speaker 10

Thank you.

Speaker 6

Your next question comes from the line of Kate Calvert from Investec. Please go ahead.

Speaker 12

Good morning, everyone. Two questions for me. Another question on pre owned. Have you rolled out or do you plan to roll out more Rolex CPO and non Rolex pre owned into more doors in the second half? And what's your sort of thoughts on rollout in the year ahead?

Speaker 12

And just coming back on to mono brands. Obviously, over the last year, you did dial back the number of new mono brands you're opening. I'm sort of looking into next year beyond the sort of trials of Roberto coin ones. Do you have plans to sort of dial the number back up again in the States?

Speaker 8

Yeah. Thanks, Kate. We're in all of our doors in the U. S. With our CPO.

Speaker 8

UK, we're in probably on a weighted basis, we'll be like 75% of the doors. We're just working through with the throw legs as we do on everything, the exact timing of when we would add. We got a couple of things are clearly in the works, including this great destination in Bond Street and 1 or 2 other projects. So we're just working on timing with Rolex and as we gear up on training and in store materials. And that's one other factor in it too that we may well wait for all of the branded furniture and so on to be available before we make any further commitments.

Speaker 8

But it's effectively 100% in the U. S. And on a weighted basis it's 75% in the UK. Plus all of our Rolex folks can access the product, whatever it is through our systems and our web enabled access. Monobrands, yes, we think we've done a good job and a lot of it was strategic in terms of kind of distribution and presence around the country.

Speaker 8

And we have dialed back other mono brand plans going forward. If some good opportunities come that really make financial sense, of course, we'll look at them. But as a key element of our growth plans for Roberto Cohen in the U. S. And we're quite advanced on a couple of sites that we'll announce when they're complete and they have definite plans.

Speaker 8

But we know that this brand will perform well in retail. As we've enhanced the presentation of Roberto Croyne and the Mer's store, the response of the clients has been fantastic. We've actually got higher productivity sales per foot and much increased space. So that's a great sign. And this brand deserves elevated presentation.

Speaker 8

So, mono brand stores will be a key part of the strategy. We'll be sensible about it from a financial standpoint. We'll look to as much as possible have them adjacent to our existing stores, similar to what we have done with the Bulgari and the Aventura. We'll certainly look to have them initially in malls where we already have significant presence so that we've got supervision and cover and all the benefits and that sort of thing we bring. But I think a big opportunity in Mono Brands, both directly with us and will also be working with our partners, many of whom have very, very strong positions in regions and states of the U.

Speaker 8

S. We'll be working with partners to do our franchise stores.

Speaker 12

Thanks very much. Good luck for Christmas.

Speaker 6

Before we take our next question, as a reminder, please press star 1 if you would like to ask a question. And our next question comes from the line of Alison Liggo from Deutsche Numis. Please go ahead.

Speaker 13

Nomis. A few minutes on the U. S. Please, if that's all right. Could you talk a bit about your expectations for Roberto Coin in half 2?

Speaker 13

So it did kind of $50,000,000 of revenue in the first half. Should we be thinking about kind of a seasonal phasing towards H2 as we think about Christmas or is it a bit flatter given the fact that a large portion of the business is wholesale? And then kind of linked to that, I guess, in terms of jewelry, broader jewelry in the US, have you seen anything in terms of changing trends there post election in that category? I'm just thinking about the potential for that to come back. And then just finally, in terms of the US and the watches business there, was all of the drag from that annualization of the change in kind of Rolex ASP year on year and the unusual phasing, was that in Q1 or are we still kind of working through

Speaker 14

that? Thank you. So on that, I'll answer the first part and then so on Roberto Cohen, there is slightly more planned in terms of phasing for the second half. December is obviously very, very important for the brand. So in the first half, they do a huge amount of events through September, October, November as well.

Speaker 14

The phasing of the business is slightly different to the rest of it, but we had a slightly higher number in the second half of the year, but nothing outside of what we'd already had planned in the budget. We have seen really positive sell through across the board, both in the department stores and in the wholesale multi brand partners, which also gives us great confidence for the second half of the year. And we'll be continuing to be rolling out further Rolex shop in shops in the new multi brands within our network that are opening up, including Tampa, which opens up on Monday, Vail, which will open up before the end of the year and further stores to open up through January February. And then the second part on the ASP?

Speaker 8

It was to do with jewelry overall in the U. S, which I'll comment on that The many trends in jewelry are clearly towards brand. We think that's accelerated actually. And there obviously are huge brands there that are driving the trend of Kathy, Tiffany, Bulgari and Roberto and David Dearman, all having a really positive experience as far as we can see, but certainly Roberto has. But just a couple of things I'd say on it, Aloy, you're right in saying that most of the business is wholesale.

Speaker 8

The way the department stores are operated is a quite a decent proportion of the business is concession stock that's there, that gives a great presentation as a result. But what it also means is that we benefit directly from sell out from a timing standpoint. We operate model stocks and as product sales we replenish. So we are very responsive to the sell out trend as well. And obviously, jewelry is usually a focus category in the holiday period.

Speaker 8

Just I'm sorry, Alison, just remind me again, and US watches your question was to do with the

Speaker 4

Yes, sorry.

Speaker 13

Yeah, the annualization of that, funny ASP that we got last year, just whether we're kind of through that, whether that was all in Q1 or whether some in Q2 or a bit more to

Speaker 4

go into Q3, I guess.

Speaker 8

Yeah, and I think you're talking calendar quarters, if I'm understanding you correctly. It mainly impacted us in Q3 last year, right over

Speaker 11

I mean, we yes, so we're tracking towards the average selling price that we were given by the brands throughout the year. So if we get a bit higher average selling price come through 1 month, we rebalanced down and vice versa. And so far, we're tracking right on, so no problems in that sense.

Speaker 4

Great. That's helpful. Thank you.

Speaker 8

The only thing I'd add to that, Alain, sorry to interrupt like that. The only thing I'd add is that the issue was our forecasting of the ASP last year rather than the actual if you like, But it mainly was a correction to Q3.

Speaker 4

Great. That's really helpful. Thank you.

Speaker 11

Okey dokey.

Speaker 6

The next question comes from the line of Piral Dhatania from RBC. Please go ahead.

Speaker 15

Okay. Thank you. Good morning, everybody. So I have three questions and just a quick follow-up, if I could. So the first one is, could you perhaps just give an indication of how the performance of the supply constrained versus non supply constrained watch brands has been across the H1 period?

Speaker 15

Secondly, just a confirmation on the multi brand jewelry concept that you're planning on opening this new concept. Is that still planned for fiscal 'twenty six? I don't think that there was any mention of that in your prepared remarks. So any clarification there would be helpful. Thirdly, just on Hodinkee.

Speaker 15

I think this is the first time we've spoken to you on an earnings call since you've acquired Hodinkee. Could you perhaps just outline what your plans for the website and the captive audience there are? What perhaps the revenue opportunities and synergy opportunities might be? And finally, just I guess an observation, which is to say that your tone appears to be quite positive, which is, I think, in contrast to some of your luxury peers who have reported through the 3Q earning season. So maybe just a comment on where that confidence, that positivity comes from, where some of your peers are sounding a lot more cautious on the outlook.

Speaker 15

I appreciate much of that headwind is coming from China, which isn't a factor for you. But are you as positive perhaps on the U. K. Outlook as you are in the U. S?

Speaker 15

Thank you.

Speaker 8

Okay. Thanks for your questions. I'll comment on the last one first because I think you did answer it yourself. The luxury category is very influenced by direct business in China overall, and clearly that doesn't affect us. And we are in the 2, I think, 2 best markets for watches in the US where there's clearly growth momentum in the market that we are delighted to be a significant part of.

Speaker 8

And here in the UK, improving consumer sentiment and market conditions that we describe is much more recognizable than what we were experiencing at this time last year, which I think was quite unprecedented. So we're clearly in the range of these overall. And we're seeing the trends. We're not responding to anything other than the trends that we're experiencing and that's why we did include a comment for everybody of the start of the holiday season as pretty much encouraging in both. You then have the added element obviously of the election being behind and generally some positive element that's coming from that as well in the U.

Speaker 8

S. So quite a few things. And the last one I've mentioned actually is the brands themselves, product introductions that we're seeing are much more appropriate for market conditions, again, particularly here in the UK. And some introductions are ones that we work with the brands directly. Supply overall has been very, very good and our buying teams have done a great job of getting our stores stocked with the right mix of product for what we know that our consumer wants.

Speaker 8

And again, this time, I'm sure that was a bit more difficult.

Speaker 15

Then you

Speaker 8

can get back to your other points, but maybe we're not going to be specific on performance by brand, but we did comment on the fact that our registration of interest lists, which is the main tool, to be honest, that we're selling key brands through remains very healthy. We edit those continually. We contact and a lot of this is reasonably recent. We're in regular contact with clients and either confirming their interest or if we're not getting a response, we archive their position. So it's a very healthy list in UK and US and we experienced very good conversion.

Speaker 8

So demand for those brands remains consistently strong and well in excess of well in excess of supply. The jewelry store in Manchester, we are scheduled to open in July, July 25. We had a bit of delay. We have the 2 big stores that we're opening there of the AP House, which will be March and then this jewelry showroom that will open in July. They're both listed buildings, which just means you've more processes to go through in terms of getting permits and permissions.

Speaker 8

And the Geolary one just take a wee bit longer because of, you know, some internal work that the local authorities wanted to spend a bit more time on, but it's we're swinging hammers as we speak and pretty far ahead in the AP store and now making good progress in the jewelry store. So I had July AP in March and the other one in July. Hadinki? On Hadinki,

Speaker 14

first of all, we're delighted with the acquisition. We knew Hadinki already was incredibly well respected by our brand partners. But the positive feedback that we had on that acquisition was great. We're also really delighted with the feedback from the Hibbing community itself, which is incredibly important. Integration is going smoothly, going to plan.

Speaker 14

And we're fleshing out and have a roadmap for all of the different categories of how we're going to grow that business. Number 1, the limited editions that they do, which are incredible, we've got a great pipeline going forward for the next year. Advertising continues to be strong and they've got some great partnerships, including a partnership with UBS that's kicked off. Insurance continues to be very, very successful for them and we know we can continue to grow that business. I think most importantly, continuing to give Houdini that editorial independence, the traffic continues to be strong for Houdini.

Speaker 14

And in the second half of this year, so later on this fiscal year, we will be integrating the Houdini website on along with Watches of Switzerland. So we'll be effectively sharing the same platform. And when you will click on the shop at that point in time, you'll go directly to watchesofwitzerland.com where you'll have one of the world's best selections of timepieces. We're also delighted in terms of the team that James Stacy, who's been a long term employee, has become the Editor in Chief of Helsinki. So really great so far and looking forward to our growth plans for the next few years.

Speaker 15

That's great. Thank you very much for the details.

Speaker 8

Okay. Thanks, Alex.

Speaker 6

We have no further questions on the call. I will now hand over to Scott for some webcast questions.

Speaker 4

We've had a question from Deborah Aitken from Bloomberg. Could you unpack your 9% to 12% maintained guidance for constant currency revenue growth for fiscal 2025 in terms of helping us to understand the addition and timing of revenue to you within that target of new stores and timing and reminder on the outstanding investment cost outlay to the big stores?

Speaker 11

Obviously, if you go back to when we gave the guidance for the year, we sort of indicated what the expectation of Roberto coin was. You take that out of our guidance and you'll find that the base business is projected to grow in low single digit. And we're confident that based on supply visibility and the project timing that we have confirmed, all the structural work is done. So we know the dates down to the day more or less. So we feel pretty good about sort of where we are.

Speaker 11

We've also seen this sort of sequential improvement coming through in the U. K. We can read it in the jewelry market certainly. And the brands some brands are more advanced in correcting sort of the assortment for this market than others. And the brands that are leading the way on that have performed extremely well for us.

Speaker 11

So the others are following and they're coming through in the second half. So I feel pretty good about that actually. And the U. S. Market, obviously, the first half was impacted by the stock rebuild that we needed to do.

Speaker 11

And the momentum coming out of Q2 and into sort of November now underwrites what we put out there. In terms of capital, obviously, we have spent a little bit more front ended in this half because the structural work and so forth when we're building these stores is the heavy part of the capital. And the shop furnitures, which are now going in, are a smaller portion. So capital is going to come in between NOK 60,000,000 and NOK 70,000,000.

Speaker 4

Thank you, Anders. Further question from Deborah. CPO, do you have any breakdown on price points, please? Which price points are driving the 50% H1 gain? And which brands outside of Rolex are headlining these?

Speaker 4

And what about rolling in a 3 year plan for CPO?

Speaker 11

So I'll answer the first portion on the average selling price. If you look at sort of our certified pre owned within Rolex, it's retailing at about a 30% premium versus the average on a new range. So clearly, the consumer appetite to pay for hard to get products is still there. So that's sort of the pricing model. Our margin is in pre owned has actually improved year on year slightly.

Speaker 11

So I know there's been questions coming through on the volatility in the secondary market, but our overall net margin has actually gone up year on year and a half. So we're happy with where we are, and I think our inventory composition is really good.

Speaker 8

Yes. And again, what I'd just add to that is the important thing, I think, and a lot of what we do is kind of confidence and trust. People are spending a lot of money and want to be confident and want to trust the advice that we're giving. And I think that's especially true in the world of pre owned, where you've got less protection overall in the secondary market. But that's not the case when you're shopping with us for Rolex or for the other brands that we sell, you can be entirely confident of the authenticity and the functionality of the product and you get great advice from our great clients in store.

Speaker 8

So we're introducing I think largely a new audience to pre owned and feel very confident about the projections. 3 year plan, yes, of course, we're kind of projecting out resources and buying teams and space and everything else. So we certainly work on that basis. But I think we'll be talking about the pre owned category for many years to come as clearly a growth area for us. And again, as you mentioned, it's Rolex is very important, but we're doing very well with the other brands as well.

Speaker 8

And the scale of our buying team and finding these great products that we know that clients will love as obviously core to all of that.

Speaker 4

Thank you, Brian. Given the time, no further questions at the moment. So Brian, back to you for closing remarks.

Speaker 8

Yes. Thanks, Scott, and thanks, everybody, for joining. I think our headlines have been very consistent throughout. We are enjoying improving trends. We see confidence in the market, both markets, UK and U.

Speaker 8

S. And the holiday season started well. And we're obviously talking a bit later than we would have done at this time last year. But we're now in December and feeling pretty good that we've got it right in terms of the potential for this period and going well. Our projects are going well.

Speaker 8

It's a big second half for us. Some massive projects in the U. S. And obviously Bond Street here in London being hugely important to us. And we'll get the best part of 2 months in our fiscal year out of that project.

Speaker 8

And we have visibility, improving visibility to supply overall, which clearly is a core part of our guidance and our confidence that was referred to earlier. A huge thanks to our team. They've been through I think if you look back over the last 24 months, they've been through tougher conditions and uncertainty and volatility, but they're back in their stride now for sure. And they're the ones that are helping us deliver the more positive tone and confidence that we have about the business. They are the best.

Speaker 8

We were delighted that they acknowledge that and getting us the accreditation have been a great place to work. So again, thanks for joining us and we'll look forward to updating you next time around. Thank you.

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Earnings Conference Call
Watches of Switzerland Group Q2 2025
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