Luxury watch retailer reports 3% fall in H1 FY2025 revenue to S$540.3 million

 

THE Hour Glass : AGS +0.65% posted a 20 per cent fall in earnings to S$61.4 million for the first half of FY2025 ended Sept 30, from S$77 million the year before.

 

In a bourse filing on Tuesday (Nov 12), the luxury watch retailer reported a 3 per cent fall in H1 FY2025 revenue to S$540.3 million from S$558.4 million in H1 FY2024. Gross margin for H1 FY2025 was also slightly lower at 30.7 per cent compared to 30.9 per cent in H1 FY2024.

 

Higher operating expenses also dragged profitability, with increased advertising and promotional activities, depreciation of right-of-use assets and loss on disposal of property, plant and equipment driving expenses up.

 

Advertising and promotional activities rose 11 per cent from S$17.7 million in H1 FY2024 to S$19.6 million in H1 FY2025.

 

The board of directors declared an interim dividend of S$0.02 per share for the H1 FY2025 period. This will amount to about S$12.96 million, and will be paid on Dec 4, with the book closure at 5 pm on Nov 25.

 

The company noted that the global luxury and speciality watch sector has been undergoing a reset amid macroeconomic uncertainties as well as geopolitical tensions. This has dampened consumer sentiment towards luxury watches, The Hour Glass&rsquo core business.

 

Despite the challenging environment, the company expects to remain profitable for FY2025.

Revenue for the period rose 1% to S$571.3 million, from S$567.5 million a year earlier

 

THE Hour Glass : AGS +0.63% posted a 9 per cent fall in net profit to S$79.5 million for its second half ended Mar 31, from S$87.8 million in the previous corresponding period.

 

The combination of geopolitical tensions, economic volatility and rising operating costs had dampened profitability for the year, the watch retailer said in a regulatory filing on Tuesday (May 28).

 

Earnings per share stood at 12.17 Singapore cents for the half-year period, down from 13.33 cents the previous year.

 

Revenue for H2 rose 1 per cent to S$571.3 million, from S$567.5 million a year earlier.

 

For the full year, revenue was up 1 per cent to S$1.13 billion, from S$1.12 billion the previous year. Net profit fell 9 per cent to S$156.5 million, however, from S$172.4 million a year earlier.

 

Higher operating costs, mainly attributable to marketing expenses, and a strong Singapore dollar had dampened earnings, the company said.

 

A change in New Zealand&rsquo s tax regulations also resulted in a one-off deferred tax charge of S$4.7 million for the company, it added.

 

Michael Tay, group managing director of The Hour Glass, noted that the results reflect a cooling-off period in the high-end watch industry.

 

&ldquo There has been a significant shift in the global macro landscape this past year resulting in the collectible and luxury watch markets finding a new equilibrium,&rdquo he said.

 

&ldquo Challenging as it may be, we believe that this is clearly a positive for the sustainability of the overall sector.&rdquo

 

A final dividend of six Singapore cents per share was recommended for the year, unchanged from the year before, for shareholders&rsquo approval at the upcoming annual general meeting. The date payable will be announced later.

 

Looking ahead, the company said consumer sentiment in the specialty watch market is likely to be tested in the near to mid term, as geopolitical tensions remain unabated and interest rates stay at their current high levels.

 

While the watch retailer foresees an industrywide slowdown, it expects to remain profitable in the next financial year.

 

LUXURY watch retailer The Hour Glass : AGS 0% on Tuesday (Nov 14) posted a 9 per cent fall in net profit for the first half of FY2024, as exchange rate movements hit its margins while revenue stayed flat.

 

Net profit for the six months ended Sep 30 fell to S$77 million, from S$84.6 million in the year-ago period. On a per-share basis, its earnings fell 7 per cent to S$0.1171, down from S$0.1258 previously.

 

The company nevertheless announced an interim dividend of S$0.02 per ordinary share, unchanged from a year earlier.

 

Revenue for the half-year inched up 1 per cent to S$558.4 million. But its gross margin narrowed to 30.9 per cent, compared to 32.4 per cent a year earlier. Its management attributed this partly to &ldquo unfavourable exchange rate movements&rdquo .

 

Costs and expenses were also up 2 per cent to S$476.7 million, with increases in finance costs, the cost of goods sold and depreciation of property, plant and equipment.

 

The company expects to remain profitable for the full financial year, but is cautious. &ldquo The prevailing economic environment and geopolitical uncertainties are expected to continue to impact consumer sentiment in the speciality watch sector,&rdquo it said in its earnings statement.

 

The Hour Glass had S$206.5 million in cash and bank balances as at Sep 30. Its loans and borrowings stood at S$84 million, down from S$93.8 million as at Mar 31.

 

SHARES of Singapore&rsquo s listed luxury watch retailers have corrected over the past year, following a spectacular run-up in the immediate period post-pandemic.

 

Both The Hour Glass : AGS -1% (THG) and Cortina Holdings : C41 +3.83% have fallen around 12 to 13 per cent since June 2022, compared with gains of 2.5 per cent in the benchmark Straits Times Index (STI), as growth in revenue slowed.

 

This reversed the extraordinary boom between March 2020 and March 2022, during which the share prices of both players rose over 300 per cent, as demand for luxury timepieces soared during the pandemic.

 

But are the good times truly over for these players?

 

Post-pandemic boom

For the financial year ended March 2023, both Cortina and THG reported higher profits and revenue. Net profit for Cortina rose 11 per cent on year to S$76.5 million, while THG&rsquo s net profit was also up 11 per cent to S$172.4 million. The earnings from both companies were more than double their FY2019 levels.

 

The outperformance came amid robust global demand, as consumers poured money they might have spent on travel into high-end timepieces instead. Stock markets and cryptocurrencies were also trading at their all-time highs post-pandemic, likely supporting high-end spending.

 

Popular brands such as Rolex, Patek Philippe and Audemars Piguet faced long waiting lists for purchases, spurring a boom in the secondary market. Sought-after pieces were fetching steep premiums to their list prices.

 

According to data from the Federation of the Swiss Watch Industry, the total value of Swiss watch exports worldwide grew some 46.1 per cent between 2020 and 2022 &ndash to 24.8 billion Swiss francs (S$37.4 billion).

 

The growth in exports to Singapore was also particularly strong over the two years. Despite the lack of tourism, export value to the Republic rose 72.5 per cent between 2020 and 2022 to over 1.6 billion Swiss francs.

 

Slowing sentiment

There are signs demand is slowing. Bloomberg reported in February that online pre-owned watch selling platform Watchfinder dropped prices by about 15 per cent.

 

Both THG and Cortina also reported lower revenue growth for their second half ended March, and year-on-year declines in net profit. They also flagged in their outlook that the uncertain global economic outlook is likely to negatively affect consumer sentiment.

 

Michael Tay, group managing director of THG, noted that economic activity and consumer behaviour are returning to pre-pandemic norms, and a &ldquo sense of balance and moderation appears to be returning to the high-end watch industry&rdquo .

 

Indeed, the global economic environment is weakening. Market watchers have flagged concerns about a potential technical recession in Singapore.

 

China&rsquo s post-pandemic reopening has also not provided the boost to economic growth that many have been hoping for.

 

Swiss watch exports to Singapore declined on a year-on-year basis in the most recent months of April and May, even though total exports to the country are still up 8.6 per cent on a year-to-date basis.

 

Potential relief?

Nevertheless, stock markets worldwide have been holding up remarkably well this year.

 

The S& P 500, for instance, has risen over 20 per cent from its October 2022 lows, entering what has been widely called a new bull market. The wealth effect arising from an increase in stock valuations may drive consumer confidence and spending on luxury items.

 

In Singapore, prices of big-ticket items such as cars and houses have also been holding up &ndash despite challenging conditions such as higher interest rates. While this pricing phenomenon is at least partly due to supply issues, it shows that demand from wealthy individuals in the market remains present.

 

Meanwhile, tourist arrivals to the Republic are recovering. The percentage of visitors from China is still a fraction of what it was pre-Covid. Swiss watch exports to China have rebounded rapidly as the country reopens, with the total value of exports more than doubling year on year in April and May.

 

An increase in the number of Chinese tourists visiting Singapore in the coming months may boost watch sales.

 

If Cortina and THG are able to maintain their revenue and profits at recent levels, their present valuations do not appear too expensive. Cortina&rsquo s share price of S$3.66 gives it a price-to-earnings (PE) ratio of 7.9, which is below its 10-year average of 9.6 &ndash according to Bloomberg data. Similarly, THG&rsquo s PE ratio of 7.9 based on its S$2.00 share price is below its 10-year average of 9.2.

 

The question is whether the potential positives are sufficient to counter the broader slowdown worldwide.

 

LUXURY watch retailer The Hour Glass reported on Thursday (May 25) a 5 per cent decline in net profit for its second half despite a slight increase in revenue, as costs and expenses rose.

 

Net profit for the six months ended Mar 31, 2023 fell to S$87.8 million from S$92.1 million in the same period a year earlier. On a per share basis, earnings fell 1 per cent to S$0.1333 from S$0.1344. The board has recommended a final dividend of S$0.06 per share, unchanged from a year earlier.

 

Revenue for the second half rose 1 per cent on year to S$567.5 million, but the group also incurred higher operating expenses due to increased advertising and promotion activities. The group also said it wrote off in full the balance of S$5.5 million of goodwill arising from its acquisition of the New Zealand business unit.

 

For the full year, The Hour Glass revenue rose 9 per cent on year to S$1.1 billion, exceeding the S$1 billion threshold for the second consecutive year, which the group said was &ldquo a reflection of continuing demand in the specialty watch sector&rdquo .

 

Net profit for the full year was up 11 per cent to S$172.4 million, while gross margins in FY2023 improved to 33.6 per cent from 32.7 per cent in FY2022.

 

Michael Tay, group managing director of The Hour Glass group, said: &ldquo The group&rsquo s performance reflected developments in the watch market during an extraordinary period. With economic activity and consumer behaviour now returning to pre-pandemic norms, a sense of balance and moderation appears to be returning to the high-end watch industry.&rdquo  

In terms of outlook, The Hour Glass said global uncertainties and the negative economic outlook is expected to dampen consumer sentiment. However, it still expects to continue to be profitable in the next financial year.

 

Net asset value per ordinary share for the group rose to S$1.18 as at end-March 2023, up from S$1.10 a year earlier.

 

DBS Group Research is keeping its &ldquo hold&rdquo call on luxury watch retailer The Hour Glass with a lower target price of $2.12 from $2.54 previously.

 

This comes on the back of the group announcing is 1HFY2023 ended September results, which saw earnings increase 35% y-o-y to $85.5 million, while revenue was 18% up at $555.5 million. The group also declared an interim dividend of 2.0 cents per share.

 

In a Nov 2 report, DBS research team said that the group&rsquo s 1HFY2023 earnings were more resilient than anticipated despite the ongoing macroeconomic uncertainties. Although margins have cooled off from its peak, 1HFY2023 gross and net margins remained firm at 32.4% and 15.2%.

 

&ldquo Given the resilient market, we have raised FY2023 earnings by 19%, backed by FY2023 revenue growth of 9%,&rdquo says DBS, who has forecased a net profit of $154 million and ebitda of $259 million for The Hour Glass.

 

While earnings are expected to remain firm, the research team is keeping its &ldquo hold&rdquo call as it has pegged the group&rsquo s valuation to a lower forward P/E ratio of 9.0x, down from 13.5 previously, in lieu of the uncertain macroeconomic outlook and rising recessionary fears.

 

&ldquo Although The Hour Glass has witnessed firm earnings in 1HFY2023, we believe recessionary fears will continue to pose as headwinds to its valuations. Most luxury goods players have seen their share prices decline year-to-date and are now trading below their 4-year historical average P/E ratios, whilst the group trades at +1SD of its 4-year average,&rdquo says DBS.

 

Nonetheless, DBS views the group&rsquo s long-term outlook as &ldquo healthy&rdquo , as it is a key beneficiary to Asia&rsquo s growing number of hight net worth individuals (HNWI). Asia is estimated to see the fastest growth in the number of HNWIs with a four-year CAGR of 6.4% by 2025, according to Statista and Credit Suisse estimates. &ldquo We observe a positive correlation of 0.67 between the number of HNWIs in Asia and the group&rsquo s sales, and this bodes well for luxury goods players over the long term,&rdquo says DBS.

Luxury watch retailer The Hour Glass has reported earnings of $85.5 million for 1HFY2023 ended September, up 35% y-o-y from $63.5 million.

 

Earnings per share for the period were at 12.58 cents, up 41% from 8.95 cents the year before.

 

The Hour Glass&rsquo revenue was at $555.5 million for 1HFY2023, an 18% increase from $472.4 million in 1HFY2023.

 

Gross profit margins were at 32.4% in 1HFY2023 as compared to 29.3% in 1HFY2022. This is attributed to higher operating expenses due to increased staff costs, rental expenses and advertising and promotion activities.

 

Cash and cash equivalents stood at $218 million for 1HFY2023, down from $247 million in the year before. The lower cash and bank balances was mainly due to payment of dividend, share buy backs and purchase of a property in Australia, located at 171 Edward Street, Brisbane at $85.3 million during the period.

 

An interim dividend of 2.00 cents per ordinary share was approved for 1HFY2023, amounting to approximately $13.2 million.

 

The company also paid a dividend of $40.3 million and bought back $55.3 million of its own shares in 1HFY2023.

 

Business outlook for the group continues to be uncertain, as the company considers the ongoing Russia-Ukraine conflict and increasingly negative economic and political uncertainties that may adversely impact consumer sentiment particularly with luxury consumers and watch buyers.

 

That being said, the group expects to continue to be profitable in 2HFY2023, and for the full financial year.

September 28, 2022 at 7:45 PM GMT+8Updated onSeptember 28, 2022 at 10:39 PM GMT+8

https://www.bloomberg.com/news/articles/2022-09-28/rolex-discount-on-sale-uk?leadSource=uverify%20wall

 

LUXURY watch retailer The Hour Glass announced Wednesday (Jun 1) that wholly owned subsidiary The Hour Glass (Australia) has entered into a sale-and-purchase agreement to acquire a freehold property in Brisbane for A$82.2 million (S$81.4 million).

 

Occupying a site of about 1,521 square metres (sq m), the 2-storey retail and office building has a total net lettable area of 2,030 sq m.

 

The property is at the junction of Edward Street and Elizabeth Street, which is within the main luxury retail precinct in Brisbane&rsquo s central business district.

 

In a bourse filing, The Hour Glass said the acquisition is in line with its strategy of owning properties in prime locations in selected cities.

 

The group will fund the acquisition through internal resources and bank borrowings.

DBS Group Research downgraded its call on The Hour Glass : AGS +0.42% to &ldquo hold&rdquo from &ldquo buy&rdquo , as it expects revenue of the luxury watch retailer to moderate in FY2023 amid macroeconomic uncertainties.

 

In a report on Monday (May 30), the research team also cut its target price on the counter to S$2.54 from S$2.62. The target price is pegged to 13.5 times the brokerage&rsquo s estimates for FY2022 earnings, which is lowered from its initial valuation of 14.5 times.

 

Shares of The Hour Glass were trading at S$2.40 at 10.35 am on Monday, up S$0.03 or 1.3 per cent.

 

The Hour Glass on Thursday posted a net profit of S$92.1 million for its fiscal second half ended Mar 31, or 74.7 per cent higher on year, while revenue for the period also increased 23.8 per cent on year to S$561 million.

 

The company said the set of results came on the back of an &ldquo accelerating momentum&rdquo in customer demand for mechanical watches, adding that the interest in watches had been &ldquo broadening and deepening&rdquo over the past few years.

 

While the results were in line with expectations, the DBS research team expects revenue will slow down in FY2023, as it had observed that The Hour Glass&rsquo s revenue are typically impacted negatively during periods of economic uncertainties.

 

It expects recession and inflation fears could weigh on consumer confidence and subsequently lead to a slowdown in luxury goods spending.

 

Spending among locals on luxury goods may also recede as travel-related spending resumes, given that global luxury good brands such as The Hour Glass had benefited from a surge in domestic spending in recent years.

 

DBS said the incoming Goods and Services Tax (GST) hike as well as the return of tourists as borders reopen could lend some support to sales. It, however, noted that the return of Chinese tourists &ndash which typically make up around 20 per cent of The Hour Glass&rsquo s sales &ndash will likely only materialise over the medium to longer term, given China&rsquo s strict zero-Covid-19 stance.

 

The research team estimates the company will post a gross margin of 29.8 per cent and net margin of 13.6 per cent in FY2023, which is a moderation from record high margins in FY2022.