PARIS — Pummelled by the coronavirus crisis, Swatch Group posted an annual net loss of 53 million Swiss francs, or $59.6 million, but predicted sales will bounce back to 2019 levels this year.
Demand for watches and jewelry will return strongly, forecast the Swiss-based group, owner of Omega, Longines and its namesake label, citing consumer spending in China following the stabilization of the health situation. “Demand will strengthen further as soon as travel restrictions can be relaxed or lifted,” the group said in a statement.
Swatch has adapted to the crisis by culling hundreds of stores in its vast retail network, closing 348 locations and reducing its worldwide staff by 10 percent. Stores in Hong Kong, a market that has suffered especially strongly, were cut by more than half, to 38 from 92.
Operating results totaled 52 million Swiss francs, hit hard by the discontinuation of its Calvin Klein business. In October 2019, Swatch ended its 22-year license agreement to make watches for the American brand, citing “turbulence and uncertainties” in the management of the PVH Corp.-owned company.
Without the end of the Calvin Klein watches activity, operating results would have reached 99 million Swiss francs, said Swatch, compared to 1.02 billion Swiss francs last year. The operating profit figure fell below expectations, said analysts at Bernstein.
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Net sales for the group were down by 32.1 percent to 5.59 billion Swiss francs, as currency rates further weighed on the performance, which was heavily affected by disruption to worldwide consumer spending amid the health crisis and store closures. Business improved in the second half, with sales down 14.3 percent at constant rates, versus a decline of 43.4 percent in the first half.
Prolonged store closures and the grounding of tourist traffic around the world has heavily affected business of the company, which operates stores in airports and malls around the world.
Double-digit sales growth in China helped the second-half performance, while business in the U.S. in December — during the crucial holiday season — reached the same level as the year before. The group flagged an especially strong performance from Tissot in that market, where it plans to launch the T-Touch Connect Solar model early this year.
Swatch said it expects to improve margins along with sales in the coming year. “There is logic in this expectation, even if the magnitude of the rebound is to be seen,” noted analysts at Bernstein.
The group’s production division, which also supplies pieces for third parties, experienced swings in demand, with some bottlenecks for production for the group’s Blancpain, Omega, Longines and Tissot labels, according to the Swiss company.
A cyber attack interrupted Omega production for 10 days, causing delivery delays and lost sales. Swatch said that the order book for the production activity had nearly returned to the previous year’s level by the end of the year, down 4 percent.
The watchmaking industry has been hit hard by the crisis, with the value of exports of timepieces from Switzerland, a benchmark for the sector, down 21.8 percent over the year, according to the Federation of the Swiss Watch Industry. Demand in Mainland China has helped improve the industry’s performance, especially in the second half of the year.
Recent financial releases from watchmakers Compagnie Financière Richemont and LVMH Moët Hennessy Louis Vuitton show improved business in watches and jewelry towards the end of the year.
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