(Bloomberg) --  

Swatch Group AG failed to hit the sales record predicted by its chief executive officer as the return of customers in China for brands including Omega and Longines disappointed and a strong Swiss franc weighed on results.

The Biel, Switzerland-based company reported revenue of 7.9 billion Swiss francs ($9.1 billion) for 2023, missing an analyst consensus estimate of 8 billion francs. 

Swatch shares fell as much as 3.5% in early trading in Zurich, hitting their lowest level in more than three years.

CEO Nick Hayek said a year ago that 2023 sales could reach an all-time high of as much as 9 billion francs as Chinese shoppers came back to stores after the end of pandemic lockdowns. China is traditionally the company’s biggest market, accounting for as much as 40% of sales.

“In China the situation is mixed, people are preoccupied, especially the younger people. This is not the best route that we would have hoped for,” Hayek said in an interview Tuesday.

Surging Franc

The company said the surging value of the Swiss franc against other currencies dented sales by 554 million francs even as it aggressively hiked watch prices in some markets.

“The rapid erosion of major currencies against the Swiss franc could not be offset by continuous price adjustments,” the company said in a statement.

While Swiss watch exports are expected to hit a record in 2023, rival watchmakers including Richemont have reported slowing demand in recent months following a Covid-era boom.

After the success of the collaboration between its entry level Swatch brand and high-end Omega marque sold more than 1 million MoonSwatches in 2022, the company tried again with a Swatch version of the Blancpain Fifty Fathoms in September. 

Hayek said sales in Blancpain’s own stores have increased by more than 25% since the Swatch collaboration.

“One problem is that they could not keep up with demand,” for some Blancpain models, Hayek said.

Swatch said net income rose 8.1% to 890 million Swiss francs. Analysts expected 979 million francs, according to consensus estimates compiled by Bloomberg. 

“It appears sales growth was led by lower price points,” Jefferies analysts including Frederick Wild said in a note. Lower-than-expected margins and the company’s cautious outlook on currencies in 2024, “will likely feed into wider fears about industry,” they said.

Swatch said its jewelry brand Harry Winston will hit more than 1 billion francs in sales this year. 

“This I can bet because they nearly achieved it this year,” Hayek said of Harry Winston.

Swatch also expects demand in China to improve even as currency shifts weigh on results. 

“Exchange rate movements will continue to impact the group’s results due to its strong industrial base in Switzerland,” the company said.

 

 

(Updates with CEO comments, shares from third paragraph.)

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