Swatch Group Chief Paints Rosy Outlook
The watchmaker is tackling the challenge from the Apple Watch with a new Tissot connected watch.
BIEL, Switzerland — Brisk business at Swatch Group looks set to continue, executives said at the company’s annual results presentation, countering evidence that demand for modestly priced watches is drying up.
Swatch Group chief executive officer Nick Hayek cited the day’s sunshine as symbolic of its results last year and the outlook for 2018.
“You have seen a very strong acceleration during the second part of the year, and certainly the last quarter, and this acceleration has continued through January and February and also March,” he told a news conference.
As reported, operating profit rose 24.5 percent in 2017 to one billion Swiss francs or $1.05 billion, boosted by strong demand from China.
“We are facing months that are either the best, or second-best or third-best in the history of the Swatch Group over the last November, December, January, February and, as it looks, also March,” Hayek reported.
“We see no reason why it should not continue. Everything is there: the mood is good, the products are good, innovations are there,” he added.
The conference was held in Omega’s sleek new headquarters, featuring cement walls and raw wooden beams. The new group headquarters are under construction. Hayek said he insisted that production at Omega carry on despite the meeting “to catch up on some delays, the demand is so big.”
With his trademark optimism, the executive said he sees the success of connected watches as an opportunity. “It will grow the overall market, it has not cannibalized at all,” he said, citing the group’s sales growth over the last five months.
The company is issuing a new connected watch through its Tissot brand next year, which will feature its own operating system. The brand already has a watch with tactile technology, the T-Touch watch.
For the new model, Swatch Group is focusing on keeping data secure, extending battery life to between three and six months, and limiting software updates so they aren’t needed every year. The price range will reflect the label’s range, between 400 Swiss francs and 1,000 Swiss francs, Hayek said.
Questioned about declines in Swiss exports of lower-priced watches, while the company has posted growth in the segment, the executive made the case that retailers are shunning the products but that customer demand remains steady.
The company said it registered a “massive” gain in market share last year, even as the Federation of the Swiss Watch Industry reported an 11.6 percent drop in value terms in exports of watches priced under 200 Swiss francs — a decrease widely attributed to the impact of the Apple Watch.
The rising Swiss franc has eaten into the small margins afforded by entry-level watches, Hayek noted. “Swatch has a long-term strategy, we accept lower margins,” he said, adding that the group is gaining market share by sticking to its strategy rather than abandoning the business.
He expressed frustration with the hesitancy of third-party buyers of its components during times of downturn, portraying the clients as running back to place orders when things pick up.
“We are at this phase where people are knocking at our door saying, ‘It would be nice if we could have more,'” said Hayek.
According to the terms of the amicable settlement signed with the Swiss Federal Competition Commission in 2013, Swatch Group subsidiary ETA has an obligation to supply watch movements to third-party customers until 2019.
Hayek noted that several of the group’s brands are struggling to meet demand, citing Blancpain, Omega and Longines. “More practical might be to say we would not deliver at all anymore, from 2020, because demand is so big we need it for us,” he said, declining to provide details of contract renewals with third parties.
To show off the company’s digital prowess at the presentation, executives designed a watch face with input from the audience, delivering copies before the end of the conference.
Thanks to a breakthrough in digital printing, Swatch Group has shaved time off of the process which now takes minutes, rather than hours to produce watch faces that previously took days or weeks.
“It is a really big advantage in order to speed up the time to market…for brands of the Swatch Group,” said Jean-Luc Bazin, a Swatch executive in charge of the group’s center for developing new products.
Gapping down
In reaction to strong earnings/guidance:
- SFS -10.3%, BNFT -8.5%, JILL -8.1%, TACO -6%, CTRP -5.1%, WOW -2%, BITA -1.3%, GCO -1.2%
Other news:
- SLDB -57.4% (receives notification from the FDA that IGNITE DMD, its Phase I/II clinical trial for SGT-001 microdystrophin gene transfer in Duchenne muscular dystrophy, has been placed on Clinical Hold)
- SPEX -17.1% (proposes registered public offering of common stock on a 'best efforts' basis)
- IVTY -16.3% (to offer and sell shares of its common stock in an underwritten public offering)
- ABM -5% (to offer 9,047,741 shares of ABM common stock in an underwritten secondary offering by selling shareholders)
- AQUA -2.2% (prices 17.5 mln share secondary offering by holders at $22/share)
- VNDA -1.3% (to offer and sell shares of its common stock in an underwritten public offering;)
Analyst comments:
- MELI -4.1% (downgraded to Hold from Buy at Stifel)
- EXPE -1.9% (downgraded to Neutral from Outperform at Macquarie)
Gapping up
In reaction to disappointing earnings/guidance:
- SMRT +55.8%, RUBI +25%, ICON +17.4%, SMTC +12%, CVTI +11.6%, BKS +10.4%, (approved FY19 budget and expects EBITDA of $175 -200 million), ABUS +9.7%, EVC +9.5%, DDD +9.4%, SHLD +8.3%, FNJN +7.8%, DG +7.8%, COGT +6.8%, QTRX +6.6%, TLRD +5.6%, ADT +5.4%, XNET +4.7%, WSM +4.2%, NDLS +4.1%, BTG +3.1%, KLDX +1.4%, SND +1.2%, NEOS +1.1%
M&A news:
- REXX +5.1% (has agreed to sell to XPR certain of its non-operated oil and gas interests in Westmoreland; expects to receive net proceeds at closing of approximately $17.2 million)
Other news:
- PTI +27.4% (confirms the FDA granted Orphan Drug Designation for PTI-428, co's cystic fibrosis transmembrane conductance regulator amplifier drug candidate and reported earnings)
- LITB +18% (established an experimental cryptocurrency mining operation in North America)
- SRRA +10.1% (indicated higher after announcing that late-breaking preclinical results for its Chk1 inhibitor, SRA737, have been accepted for presentation in a poster at the American Association of Cancer Research )
- ALXN +5.6% (announces 'positive' top-line results showing successful Phase 3 clinical study of ALXN1210 in complement inhibitor treatment-naïve patients with paroxysmal nocturnal hemoglobinuria)
- SVU +3.3% (Supervalu plans to exit Farm Fresh Banner - to sell 21 stores and continues discussions to sell additional Farm Fresh stores)
- SRPT +2.1% (following SLDB DMD drug news)
- MGA +1.4% (Magna and Lyft announce a multi-year collaboration in which the companies will jointly fund, develop, and manufacture self-driving systems; Magna will invest $200 mln in Lyft equity)
- LJPC +1.2% (announces $100 mln public offering of common stock)
- SQ +1.2% (following CNBC mention)
Analyst comments:
- AKAM +2.1% (upgraded to Sector Weight from Underweight at KeyBanc Capital Mkts)
- ESIO +2.1% (initiated with Buy and $36 tgt at Stifel)
- IIVI +1.6% (initiated with Buy and $55 tgt at DA Davidson)
- AVGO +0.9% (resumed with a Buy at Deutsche Bank; tgt $325)
- XOM +0.8% (upgraded to Buy from Reduce at HSBC Securities)
- AON +0.8% (upgraded to Buy from Neutral at Goldman)
- WLTW +0.7% (upgraded to Neutral from Sell at Goldman)
- ZBH +0.5% (initiated with a Outperform at Raymond James)
Early premarket gappers
Gapping up:
- SMRT +62.3%, RUBI +21.5%, PTI +19.9%, ICON +19.7%, ALXN +15.7%, BKS +10.4%,SRRA +10.1%, DDD +9.8%, ABUS +9.7%, EVC +9.5%, SMTC +8.9%, SHLD +8.7%, SVU+8.5%, FNJN +8.5%, CVTI +7%, JILL +7%, COGT +6.8%, QTRX +6.6%, TLRD +5.6%,WSM +5.3%, REXX +5.1%, XNET +5.1%, BITA +4.5%, NDLS +4.1%, YRD +4%, BTG+3.1%, SRPT +2.1%, ESIO +2.1%, IIVI +1.6%, MGA +1.4%, KLDX +1.4%, SQ +0.9%,AIPT +0.8%, MRK +0.7%, PYPL +0.5%
Gapping down:
- SLDB -54.5%, SPEX -11.8%, BNFT -8.5%, IVTY -8.1%, CVRS -6.1%, TACO -6%, CTRP-5.8%, SFS -2.1%, AQUA -2%, ABM -1.7%, VNDA -1.3%, ZEN -0.5%
“I worry my Christmas shopping list was a very depressing ghost of a future in which brands cease to exist and we all just buy the products the algorithm tells us to.” (Senior ad agency executive).
We explore how Alibaba and Amazon are up-ending brands and advertising. More than just countering Google and Facebook, they bring additional risk to our coverage.
Despite their recent efforts, agencies remain overweight “traditional” branding advertising and underweight Amazon and Alibaba. Shrinking brand building budgets bode ill for broadcasters. We expect organic growth, margins and ROCE to erode in both segments.
Yet, the e-commerce marketing revolution will have its winners: within our coverage, we see Ascential (+) and Criteo (=).
Asian stocks fluctuated and the yen gained as traders adopted a risk-off approach, digesting comments from President Donald Trump’s new economic adviser. Treasury yields extended declines after lackluster U.S. retail sales stoked concern that consumer spending is cooling, weighing on the dollar. Stocks in Tokyo swung before closing little changed, while they fell in Australia and rose in Seoul. U.S. futures swung between gains and losses. Earlier, the S&P 500 fell for a third day, with volume more than 10 percent below the 30-day mean. Incoming White House economic adviser Larry Kudlow signaledTrump would support a strong dollar and take a tougher line on trade with China. The yen gained for a second day. Treasury yields tested early-February lows on bets the Federal Reserve won’t hasten the pace of interest-rate hikes. US After Hours DDD / SHLD +9%, CVTI / SMTC +7%, WSM +5% higher, while TACO / CTRP -6%, BNFT -5% are lower following earnings/guidance
Nikkei +0.12% Hang Seng +0.26% CSI +0.57% Shanghai +0.01% Shenzen -0.22%
Eur$ 1.2368 CNH 6.3132 CNY 6.3180 JPY 106.07 GBP 1.3985 CHF 0.9449 RUB 57.04202
S&P +0.22% EuroStoxx +0.38% FTSE -0.03% Dax +0.50%SMI +0.28%
Macro :
- Italy’s Post-Election Mess Laid Bare in Day of Chaos and Clashes
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- AGN US : Allergan Extends Climb as Management Weighs ‘All Options’: RBC
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- POST av : Austrian Post Full Year Dividend Per Share EU2.05
- GBB FP : Bourbon Starts Talks With Lenders After Breaching Loan Covenants
- BT/A LN : Openreach Ups Number of Engineers to Support Full-Fiber Buildout
- CAP FP : Cap Gemini Proposes to Renew Term of Chairman/CEO Hermelin
- DIREN FP : Direct Energie Sees Full Year Revenue EU1.35 Bln To EU1.4 Bln
- CSGN VX : Credit Suisse Sued by Investor Over Volatility Note That Crashed
- DBK GY : DWS to Strengthen Role as Shareholder After IPO, Huber Tells BZ
- DUFN SW : Dufry Full Year Ebitda Matches Estimates
- ENGI FP : Engie in Talks to Sell 2 Brazil Plants to ContourGlobal: Echos
- FRU GY : Ferratum Sees Full Year Revenue EU280 Mln To EU310 Mln
- GATE SW : Gategroup Sets Price Range for Proposed IPO at Chf16-CHF 21/Shr
- G IM : Generali FY Net Rose 1.4% to EU2.11b; Dividend at EU0.85/Share
- G IM : Generali to Announce New Strategic Plan in November, CEO Says
- GWI1 GY : Gerry Weber First Quarter Ebitda EU7.8 Mln
- SDF GY : K+S Full Year Ebit 1.7% Below Estimates
- KORI FP : Korian Full Year Revenue EU3.14 Bln
- LXS GY : Lanxess Fourth Quarter Sales Beat Highest Estimate
- LDO IM : Leonardo Full Year Revenue EU11.5 Bln
- LHA GY : Lufthansa 2017 Adj. Ebit EU2.97b vs Est. EU2.83b
- MUV2 GY : Munich Re Sees 2018 Profit EU2.1b-EU2.5b, Continues Buyback
- RAA GY : Rational Full Year Dividend Per Share Beats Estimates
- RWE GY : RWE May Be Cut to Junk by Moody’s on Sale of Innogy Stake to EON
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- SIX2 GY : Sixt Full Year Pretax Profit Beats Highest Estimate
- SIE GY : Siemens Unit IPO Could Price At EU28/Shr:Terms Show
- GLE FP : SocGen Board Decided No Severance Package for Valet
- SREN SW : Swiss Re Reduces CEO Mumenthaler’s Pay by 1 Million Francs
- SNH GY : Steinhoff Holders Voted to Absolve Directors of Liability: BD
- STL NO : Statoil Proposes to Change Name to Equinor
- FP FP : Total to Distribute Third 2017 Interim Dividend of EU0.62/Shr
- UNA NA : Unilever Chooses Single Base in Netherlands in Blow to May
- VIFN SW : Vifor Pharma Full Year Sales Match Estimates
- VIV FP : Vivendi CEO May Suspend Powers as Telecom Italia Chairman: Rtrs
- KVW NA : VolkerWessels Full Year Ebitda 3.0% Above Estimates
- VOW3 GY : GM, VW, Chrysler Face Damages Claims for Takata Airbag Recalls
>>> Up
* Adidas Upgraded to Outperform at Telsey; PT 224 Euros
* Bouygues Upgraded to Buy at DZ Bank; Price Target 46.60 Euros
* EON Upgraded to Buy at LBBW; Price Target 11 Euros
* Hikma Upgraded to Hold at Jefferies; PT 9.97 Pounds
* Hikma Upgraded to Buy at Citi; PT Set to 12.50 Pounds
* Stabilus Upgraded to Buy at Bankhaus Lampe
* SGL Upgraded to Add at AlphaValue
* Symrise Upgraded to Buy at Nord/LB; Price Target 70 Euros
* TalkTalk Upgraded to Outperform at Macquarie; PT 1.50 Pounds
* Tesco Upgraded to Overweight at JPMorgan
>>> Down
* Big Yellow Group Cut to Neutral at Goldman; PT 9.60 Pounds
* Bilia Downgraded to Hold at Kepler Cheuvreux; PT 88 Kronor
* Hammerson Downgraded to Neutral at Credit Suisse; PT 4.60 Pounds
* Haulotte Group Cut to Hold at Kepler Cheuvreux; PT 19 Euros
* Imperial Brands Cut to Neutral at Goldman; PT 27.60 Pounds
* Land Securities Downgraded to Sell at Goldman; PT 8.65 Pounds
* Sunrise Downgraded to Underweight at Barclays; PT 80 Francs
* Telepizza Group Cut to Reduce at Kepler Cheuvreux; PT 5.20 Euros
>>> Initiation
* HSBC Reinstated at Barclays With Equal-weight; PT 7 Pounds
* Konecranes Rated New Buy at Goldman; PT 45 Euros
* Lloyds Reinstated at Barclays With Overweight; PT 90 Pence
* Metrovacesa SA/Old Rated New Buy at Goldman; PT 17.70 Euros
* Metrovacesa SA/Old Rated New Overweight at Morgan Stanley
* RBS Reinstated at Barclays With Overweight; PT 3.10 Pounds
* Standard Chartered Reinstated Underweight at Barclays
>>> Call