Swatch Group dashes dividend expectations, shares tick lower

By John Revill

ZURICH (Reuters) -Swatch Group on Tuesday missed profit forecasts for 2023 and proposed a much smaller than expected dividend increase - putting pressure on the world's biggest watchmaker's stock.

The maker of Omega, Tissot and Longines watches as well its eponymous mass-market plastic watches posted sales rising by 5.2% last year to 7.88 billion Swiss francs ($9.10 billion).

Although the figure was in line with market expectations, earnings fell short, with operating profit of 1.19 billion francs missing forecasts for 1.32 billion francs, according to LSEG data.

The proposed 8.3% dividend increase in dividend also missed expectations for a 19% increase, helping to send Swatch shares 3.2% lower in early trading.

"Swatch Group's profitability was far worse than expected amid a mix of ramped investments, retail expansion and Swiss franc strength," said Kepler Cheuvreux analyst Jon Cox.

"Sales were strong and the group is winning market share but free cash flow was actually negative despite a near 13% rise in constant currency sales in 2023."

Bernstein analyst Luca Solca said Swatch was a victim of moderating consumer demand hitting second level brands. He highlighted a deceleration in Swatch's organic growth to 6.4% in the second six months of the year from an 18% in the first half.

Uncertainty about the economic outlook, persistent inflation and China's cooling economy have weighed on the luxury sector as a whole.

Swatch - known for its bullish outlooks - was still confident on the basis of its lower and mid-priced segments, as well as the exposure of its Omega brand as the timekeeper at this year's Paris Olympics.

"The group anticipates excellent opportunities for further growth in local currencies in 2024," the company said.

($1 = 0.8663 Swiss francs)

(Reporting by John Revill; editing by Linda Pasquini and Barbara Lewis)