Watches of Switzerland lifts outlook as US and UK demand ticks higher

Sales and guidance update

Watches of Switzerland logged solid gains on both sides of the Atlantic, with US sales up 22% on a constant-currency basis and UK sales up 9% in the first half of the fiscal year. Building on that momentum, the retailer shifted its full-year outlook to the high end of its previous range and now sees revenue growth of 7% to 10%.

Growth in the UK was broad-based, the company said, including across many regional cities.

Market drivers

The backdrop has improved for the industry. Swiss watch exports increased for a fifth consecutive month in September, led by demand from the US. That marks a recovery from last year's disruption, when manufacturers were dealing with the effects of tariffs from US President Donald Trump.

Within the US, the company's latest period benefited from its acquisition of Deutsch & Deutsch, adding more fuel to sales.

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Market reaction and outlook

In early London trade, the shares jumped, at one point up 5.3%. Through Monday's close, the stock had risen 57% for the year. Still, Chief Executive Officer Brian Duffy flagged economic uncertainty heading into the Christmas stretch.

Analysts are taking a similar tone. Barclays' Richard Taylor wrote in a note that "The tone of the statement appears to contain more caveats about the macro outlook than the 1Q update, but performance has actually been better than expected," and "We consider this appropriately prudent, especially ahead of peak holiday season trading."

What this means for your portfolio

The top line is moving in the right direction and guidance is higher, but management's warning and a cautious sell-side read remind us that holiday trading could be a swing factor for the shares. The broader recovery in Swiss exports and added scale in the US are tailwinds, yet macro clouds into year end are still in view.

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