China Behind Swiss Swatch Profits Decline | Economy

Swiss watchmaker Swatch Group on Monday reported a decline in its first-half profits due to the luxury goods market crisis in China, as the company warned that difficulties in its main market would continue for the rest of the year.

Profits fell 70.5% compared to the same period last year, recording 147 million Swiss francs ($164 million), with sales down 14% to 3.4 billion francs ($3.8 billion).

Swatch, known for its brightly coloured plastic watches and which owns a number of luxury brands including Longines, Omega and Tissot, said falling demand for high-end products had hurt its performance.

The company said the drop in sales “was due to a sharp decline in demand for luxury goods in China,” including Hong Kong and Macau.

Analysts polled by Swiss financial news agency AWB had expected a much higher net profit of 354 million francs.

Swatch shares were down 9.3% as midday approached Monday, while Switzerland’s SMI index was up 0.4%.

“Swatch Group is most in touch with middle-class Chinese consumers who are clearly cutting back on their consumption,” Bernstein analyst Luca Solca said in a note to clients.

Luxury companies are feeling the mounting economic pressures in the world’s second-largest economy, with Burberry sacking its chief executive on Monday after reporting “disappointing” financial results, mainly due to weak performance in China.

Swatch attributed its weak performance to its decision to forgo layoffs and maintain its production capacity to be able to respond to the market recovery.

She said other cost-cutting measures would start to pay off in the second half of the year.

Overall, Swatch said it expects the situation to improve strongly in the second half of the year.

But the challenges associated with the Chinese market are likely to persist across the entire luxury goods sector until the end of the year.

“However, the potential that China offers remains the same,” Swatch said.