Swatch Group AG (UHR), the biggest maker of Swiss watches, said it expects “healthy” growth this year after 2013 earnings rose 17 percent, boosted by compensation from a legal battle with Tiffany & Co. (TIF) over a failed alliance.
Operating income rose to 2.31 billion Swiss francs ($2.6 billion), the Biel, Switzerland-based company said today in a statement. Swatch said it had “very good” watch and jewelry sales in January. The shares advanced as much as 5.1 percent, the biggest gain in a year.
“The outlook is very solid as well and I expect Swatch to have a good year,” said Jon Cox, an analyst at Kepler Cheuvreux. The operating margin excluding Tiffany’s payment was 24.4 percent, beating analysts’ estimates of 24.2 percent, Cox said.
Tiffany was ordered to make a payment of about 400 million francs to Swatch in December, ending a two-year legal battle after the biggest maker of Swiss timepieces alleged the U.S. jeweler blocked development of a partnership started in 2007. Tiffany has said it honored the terms of the alliance.
Swatch traded 4.3 percent higher at 555.50 francs at 10:40 a.m. in Zurich. The shares have gained 2.5 percent in the past 12 months, while Tiffany rose 29 percent.
“All brands had an auspicious start,” Swatch said. “After four years of strong and dynamic growth by Swatch Group, as well as the entire Swiss watch industry, continued healthy growth is expected in 2014.”
Chief Executive Officer Nick Hayek told Bloomberg Jan. 10 that sales could rise by a “double-digit” percentage figure in 2014 as revenue from China picks up, fueled by mid- and low-price brands, and a possible improvement in the luxury segment. He said exchange rates are his “only real headache.”
The weakness of currencies against the Swiss franc and a crackdown on extravagant gifts in China, the largest market for Swiss watches, has weighed on luxury watchmakers. Exchange-rate swings cut more than 100 million francs from second-half sales, Swatch reported earlier. Full-year gross revenue rose 8.3 percent, the slowest rate in four years.
The payment from Tiffany added about 250 million francs to operating profit, Mario Ortelli, an analyst at Sanford C. Bernstein, estimated. Excluding that amount, operating income matched the 2.06 billion-franc average estimate of 22 analysts surveyed by Bloomberg.
“These are strong results,” Allegra Perry, an analyst at Cantor Fitzgerald, said by e-mail. “Excluding the Tiffany effect, full-year margins declined by 100 basis points. I had estimated a 130 basis-point drop, so they beat also on an underlying basis.”
The company bought watch and diamond-jewelry maker Harry Winston for about $1 billion in March, expanding a list of brands that includes Omega, Longines and Tissot. Swatch also took full control of Rivoli Investment LLC at the end of November, expanding in the Middle East with more than 360 stores in the region.
A weaker performance in China, an “adverse product mix” with mid-range brands outperforming the high-end segment and the acquisition of Harry Winston weighed on margins in the second half of 2013, Thomas Chauvet, an analyst at Citigroup Inc., wrote. Swatch has said its sales in mainland China rose by a “high single-digit” figure.
Cie. Financiere Richemont SA (CFR), the world’s second-biggest luxury-goods company, said Jan. 16 that sales declined in China in the final three months of 2013, while exchange-rate shifts stripped 5 percentage points off nine-month sales growth.
Switzerland’s watch exports to China and Hong Kong dropped 8.5 percent in the first 11 months of 2013, on track for the second yearly decline since 2008, the year those markets became the biggest source of revenue for the industry.
Swatch proposed an 11 percent dividend increase.