Watches of Switzerland (WOSG)

758.5p

Loss to date: 4.3%

We said to buy Watches of Switzerland (WOSG) at 792.4p on 16 June 2022, arguing the luxury watches and jewellery seller’s year-to-date share price plunge represented a compelling entry point for investors with time on their side as its global growth journey is just getting started.

Whereas the outlook for most consumer-facing businesses is bleak, Watches of Switzerland is well-placed to buck the wider retail doom and gloom. Led by CEO Brian Duffy, the Rolex, Omega and Breitling brands purveyor enjoys high margins and is blessed with pricing power conferred by the sale of luxury products that appeal to a well-heeled clientele whose lifestyle won’t be too affected by inflationary pressures.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

While the shares have ticked 4.3% below our entry price, we remain excited by the growth opportunities in the UK and US, while the company’s entry into the European market brings further geographic diversification.

Watches of Switzerland reported record sales and profits for the year to 1 May and said it had started the new year with ‘strong momentum’, with waiting lists growing as demand continues to exceed supply. It also flagged the recovery of footfall and traffic at airports as a positive sign for sales growth this year.

Guidance is for sales of between £1.45 billion and £1.5 billion, an increase of 17% to 21% year-on-year, and adjusted earnings before interest and tax of between £157 million to £169 million.

WHAT SHOULD INVESTORS DO NEXT?

Keep buying the shares. With supply restricted by manufacturers, demand for luxury watches is only growing and Duffy informed Shares that the aspirational market for watches is much bigger than the company initially thought – he calls it ‘rational indulgence’ – and pointed out that watches are a liquid asset that also hold their value.

The company trades on 14 times forecast earnings for the year to May 2023, which is undemanding given the group’s cash generation and big growth potential in the US and European markets.

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