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Leibish & Co

Thursday, July 28, 2011

Record Sales at Swatch Group, but Strong Swiss Franc Cuts Margins

Watch and jewelry sales at the Swatch Group rose 24 percent at constant exchange rates to 2.9 billion Swiss francs ($3.6 billion) for the first half of 2011. At current exchange rates the increase was 13.3 percent for the six-month period. Total sales increased 24.2 percent at constant exchange rates to a record $3.36 billion Swiss francs ($4.17 billion). At current exchange rates the increase was 13.3 percent.

The Biel/Bienne-based company owns 19 watch and jewelry brands and also produces watch components and electronics, has its own distribution network, its own retail stores and owns and manages museums for some of its better-known watch brands.

“This very positive growth spanned all major regions and all price segments. Key contributory factors included not only a combination of strong brands and expansion of the distribution and retail network, but also the Production segment, which increased its gross sales by a massive +28.5% at constant rates,” the company, which owns 19 brands, said in a statement.

The company, as shown by the growth difference between constant and current exchange rates, has been hampered by the Swiss franc which has gained 31 percent in value against the U.S. dollar. The company said the impact of the rising currency amounted to a loss of 387 million Swiss francs ($481.4 million) or 12.8 percent.

“The overvalued Swiss franc reduces margins at the Group’s foreign distribution companies, while the high volatility makes exchange-rate related price adjustments difficult,” the company said. “The strength and volatility of the Swiss franc have to be considered as extremely problematic for Switzerland.”

Its operating profit for the first-half of 2011 increased 20.8 percent to a record $756 million Swiss francs ($940.5 million), with an operating margin of 23.7 percent. Net income increased 24.5 percent to 579 million Swiss francs ($720.3 million), representing 18.2 of net sales for the first half of 2011.