Swatch Group with massive profit slump - Hayek remains calm

Swatch Group with massive profit slump - Hayek remains calm

Minus 14.4 percent (sales) and a whopping 75 percent (profit) – these are the current key figures for the Swiss watch group for the past year.

According to the NZZ newspaper, Swatch Group CEO Nick Hayek gives the 2024 watchmaking year a 3 – on a scale of 1 (catastrophic) to 10 (excellent). One would have expected a 1.

But Nick Hayek, son of Swatch Group founder Nicolas Hayek, is known to think a little differently than other watchmakers. "If there's a drop in sales, he doesn't want to immediately lay people off, because it's difficult to find qualified watchmakers again during a subsequent upswing," the Swiss newspaper 20minuten quotes Matthias Geissbühler, Head of Investments at Raiffeisen Switzerland, as saying.

At the same time, he cites this as one reason for the unexpectedly sharp drop in profits: it is so significant because the company is holding back on cost cuts. This also applies to layoffs.

The 12.2 percent (CHF 6.74 billion) decline in sales, however, can be explained by the generally challenging global consumer market, which is now also affecting the luxury goods market, as evidenced by the business figures of LVMH, Richemont, Kering, and, more generally, the export statistics of the Swiss Watch Federation. The main reason is the slump in luxury consumption in China, including Hong Kong and Macau.

The Swatch Group's net profit in 2024 was just CHF 219 million; analysts had expected almost twice as much at CHF 412 million – which was still significantly below the 2023 profit of CHF 890 million.

30 percent drop in sales in China

The sharp decline in demand for consumer goods in China (including Hong Kong and Macau SAR) and the Southeast Asian markets, which are heavily dependent on Chinese tourists, continued in the second half of 2024. Sales in these key regions for the Group's watch and jewelry brands fell by around 30 percent overall. China (including Hong Kong and Macau) accounted for 27 percent of total sales, compared to 33 percent in the previous year.

The Swatch Group reported record sales in local currencies for the US, Japan, India, and Middle East markets. Several European countries, such as the UK, the Netherlands, and Belgium, also exceeded previous year's sales by 20 percent or more, and high double-digit growth rates were also achieved in Japan.

Outlook 2025

Despite the significant drop in sales and massive profits, the Swatch Group is optimistic about the future. "The year 2025 promises positive momentum worldwide," the annual report states. It continues: "The Group's comprehensive industrial base and the strong presence of its brands, with many surprising new products in all price segments, point to positive development in 2025."

Regarding the Chinese market, however, the company is cautious: "Demand in China will remain subdued. The habits and behavior of Chinese consumers are expected to continue to change. This will open up numerous new opportunities for strongly positioned brands." What exactly this means is not discussed.

Overall, however, the Swatch Group expects a better grade than a 3 for 2025 and anticipates substantial improvements in sales, operating results and cash flow.

Matthias Geissbühler, equity expert and head of investments at Raiffeisen Switzerland, is also not worried about the group.

"Nick Hayek has spoken positively about the current year. He's generally optimistic. But after the extremely weak 2024, things can only get better, and it's only a matter of time before consumption in China picks up again." 

One of Swatch's greatest strengths is its broad product portfolio, with brands ranging from the low price ranges to the luxury segment with brands such as Blancpain and Omega."